Yarse, those temps sound far too high when you're essentially 'idle'. I suggest you buy a new CPU cooler (Zalman are the 'main boyz' when it comes to these) for around £15 - £20 ($30 - $40), along with some Arctic Silver thermal paste.
Install the new cooler and your temps should drop, so long as your case is reasonably well ventilated. If you want to further increase cooling power add some case fans (making sure that they are blowing in the right direction! Cool air sucking IN the front, warm air blowing OUT the back)
That 500W powersupply should just about cut it for your rig, so I dont believe thats an issue. As long as is from a reputable manufacturer that is.
AMD 64 X2 4200+ @ 2.2ghz
2048mb Corsair PC3200 RAM (2x1gb)
WinFast NF4SK8AA Motherboard
660GB HDD Capacity (3xHDD)
600w Enermax PSU
eVga 8800 GTS 320mb