Ok first, don't I need to install a fan on the processor chip? If yes then can anyone tell me a decent fan compatible with this and any links that could help me with installing this on the processor?
The Thermaltake Venus 12 Heatsink mentioned by a couple of us will include a more than adaquent fan.
As far as RAM is concerned, if you don't plan on overclocking, value RAM will suit you fine and save a bunch of money in your wallet. If you plan on overclocking however, I'm afraid you won't achieve very good results without dishing out a bit of money. It's well worth it though.
The PSU issue I'm a bit torn on. $50 is about as cheap as you're gonna get for a semi-decent power supply, and even that's a bit iffy. The PSU is a really important part, if you throw in some cheap generic PSU with your equipment and it fries, chances are it'll take something else with it.
Basically what you want is good steady rails. If you look on the inside of your current case now you will probably see a label on the side of your PSU with a bunch of numbers like 3.3, 5, 12 etc. These are your rails, and should not fluctuate very much, as in they should maintain a pretty steady voltage, and they should remain relatively close to where they should be.
In addition, some PSUs are rated as 420 watts, but that may really just be their peak output, meaning they won't put a steady 420 watts all the time. A good power supply will give out a steady output they advertise and will have a higher peak output. For example, a 420 watt PSU may give out a steady 420 watts, but may peak at something like 500 watts.
Finally, you'll want high amps on your rails. Basically, the higher the better.