Advice on Gaming PC build

Honestly, you could do a lot better. What is Budget (max, and will try to get under, if that doesn't reduce performance)?

I think it currently stands at about £500 including P&P and I would prefer not to go above £500 if possible, however I want it to be able to play demanding games on relatively high settings with decent FPS so I'm basically trying to get it as cheap as possible.

Obviously, a £500 budget, to include operating system AND monitor doesn't give a lot of scope, but the more I look at original build... it's horrible. This, whilst not brilliant, would be miles better.
PCPartPicker part list / Price breakdown by merchant / Benchmarks

CPU: Intel Core i3-3220 3.3GHz Dual-Core Processor (£90.95 @ CCL Computers)
Motherboard: Gigabyte GA-B75M-D3V Micro ATX LGA1155 Motherboard (£48.10 @ CCL Computers)
Memory: Corsair Vengeance 4GB (2 x 2GB) DDR3-1600 Memory (£19.39 @ Scan.co.uk)
Storage: Samsung Spinpoint F3 500GB 3.5" 7200RPM Internal Hard Drive (£25.66 @ Dabs)
Video Card: Gigabyte Radeon HD 7770 GHz Edition 1GB Video Card (£90.92 @ Scan.co.uk)
Case: Cooler Master Elite 430 ATX Mid Tower Case (£34.99 @ Dabs)
Power Supply: XFX ProSeries 450W 80 PLUS Bronze Certified ATX12V / EPS12V Power Supply (£35.99 @ Novatech)
Optical Drive: LG GH24NS90 DVD/CD Writer (£13.98 @ Novatech)
Monitor: Asus VH192D 18.5" Monitor (£65.02 @ Scan.co.uk)
Operating System: Microsoft Windows 7 Home Premium SP1 (64-bit) (£70.36 @ CCL Computers)
Total: £495.36
(Prices include shipping, taxes, and discounts when available.)

I've dropped to i3. That actually makes very little difference, for most gaming, and is only going from weak i5 to good i3. What that does is free up some funds for decent power supply and most importantly, much better graphics card. Here are the benchmarks to compare overall performance, between original GT640 and my HD7770. Not even on the same planet!<a http://www.anandtech.com/bench/Product/612?vs=536 /a>
To be honest, whilst that case is actually better than the original, it's still not "brilliant". It would be good to spend a few extra pounds, on an even better case. A larger monitor would also give a better gaming experience.

Thanks for the help, would it be slightly better if I got this case-Cooler Master Elite 431 Plus (Black) for the front panel USB 3.0 ports, to suit the motherboard.

Just a couple of questions. Would it be possible to buy extra Video Memory in the case of 1GB being insufficient without replacing the entire Video Card, and if I decided to spend the extra money would it be worth having the quad core i5 for games that supported quad core processors.

It's very much a question of what's best value, as well as what's best.
Yes, the 431Plus would be better, but, if going to that level, it's actually worth spending an extra £3 for the even better Antec 300Two.
You can't buy "extra" memory for GPU. The only manufacturer, that supplies a 2GB version of thay GPU in UK, as far as I'm aware is Asus @ £126. I'm not sure any benefit is worth that extra cost. I think if you were going to do that you would be much better with a 2GB HD7850 for £149. I don't think the 2GB Asus is best value, in fact I'm not sure 2GB, in a HD7770 will make much difference.
If you wanted to go i5, you could simply upgrade that, without changing anything else. The best value i5 is the 3470 @ £143. There are few games, at present that really use more than two cores, multi-player in BF3 is one. No doubt more will, in the future.
An alternative approach might be to use i3, but with a Z77 mobo, which would allow a future upgrade to an unlocked processor, with overclocking. It would also allow the potential for crossfire, if you wanted to go there. All depends somewhat on how flexible your budget can be. I endeavoured to get best bang for buck, with the budget.

Ok, I'm thinking of going with this setup:

PCPartPicker part list / Price breakdown by merchant / Benchmarks

CPU: Intel Core i5-3470 3.2GHz Quad-Core Processor (£143.38 @ Ebuyer)
Motherboard: Gigabyte GA-B75M-D3V Micro ATX LGA1155 Motherboard (£47.86 @ CCL Computers)
Memory: Corsair Vengeance 4GB (2 x 2GB) DDR3-1600 Memory (£19.39 @ Scan.co.uk)
Storage: Samsung Spinpoint F3 500GB 3.5" 7200RPM Internal Hard Drive (£25.66 @ Dabs)
Video Card: Gigabyte Radeon HD 7770 GHz Edition 1GB Video Card (£90.92 @ Scan.co.uk)
Case: Antec Three Hundred Two ATX Mid Tower Case (£50.13 @ Amazon UK)
Power Supply: XFX ProSeries 450W 80 PLUS Bronze Certified ATX12V / EPS12V Power Supply (£35.99 @ Novatech)
Optical Drive: LG GH24NS90 DVD/CD Writer (£13.98 @ Novatech)
Monitor: Asus VH192D 18.5" Monitor (£65.02 @ Scan.co.uk)
Operating System: Microsoft Windows 7 Home Premium SP1 (64-bit) (£70.45 @ CCL Computers)
Total: £562.78
(Prices include shipping, taxes, and discounts when available.)

Obviously it's more expensive but I think it's worth it for the extra speed. Would this setup be able to play most of the more demanding games on at least medium-high settings?

That will play virtually all current games at, or close to highest settings. Obviously, if in the future, you wanted to upgrade to a larger 1080p monitor, you may then struggle a bit, without upgrading GPU, to match, but that's one for the future.

Great, thanks for all the help.