agree with diablo, the 3200+ Winchester is a perfect processor, great price and plenty of power. Then you can get a beefier video card, the x800 xl is a good option.
I think RAID 0 for your hard drives would be a great idea, because you will have very fast speeds that way.
SATAII is super-fast and 2 of these in RAID 0 would probably be your best option.
Basically I suggest this setup (everything is compatible):
Motherboard: GIGABYTE GA-K8N Ultra-9 NVIDIA nForce4 Ultra
Processor: AMD Athlon 64 3200+ Winchester
Hard Drive (TWO of these): Hitachi 80GB 7200RPM SATA II Hard Drive
Video Card: Rosewill ATI Radeon X800XL Video Card
Also I have to point this out now. That power supply that comes with that case is absolute crap. You really need a better power supply than that, TRUST ME.
This power supply woudl be perfect for you, it's just sweet and would look great in your case as well (blue).
Power Supply: Thermaltake PurePower 460w Blue Light PCI Express Power Supply
Also you should get an additional 80mm fan for your case. Because there is a spot in the back for a fan but it has no fan. I would recommend this fan(it's one of the best)
Fan: CoolerMaster Blue 80mm Neon LED Fan Rifle Bearing
Hope this helps!
Sorry if I went over budget