You might as well upgrade to win 7 if you can get an OEM version with a video card purchase. Not many DX10/11 games are all that big of a jump over DX9, but there are noticeable differences. Metro 2033 is probably the best example. Besides, Win7 is so much nicer to use than XP.
As above you might as well save some money and go for a 560 or 6950 unless you plan to upgrade your CPU in the near future.
__________________Q9550 w/ Thermalright Ultra 120 Extreme | 4GB Team Xtreme Dark 800MHz CL4 | Gigabyte X48-DS5
ASUS Radeon 5870 | 240GB OCZ Vertex 2 | 1TB WD Green Power | BenQ V2400W 24" LCD
Corsair HX-1000w | LG GGW-H20L 6x DL Blu-Ray Burner/HD-DVD Reader | Coolermaster Cosmos S
Acer TravelMate 4002WNLCi: Pentium M 725 @ 1.6GHz | Mobility Radeon 9700/64MB | 2GB DDR400 | 15.4" WXGA