"Final" Dell XPS 420 Video Card Upgrade Question(s)

Hi folks!

I am looking at helping a friend upgrade his Dell XPS 420 to the max it can handle and have some questions.

His system is the XPS 420 with a 375 watt power supply, the Core 2 Q6600 2.4ghz processor (it might be 2.6...), 4GB of system RAM and the ATI 2600XT 256MB video card.  The system is running Windows 7 Ultimate, 64bit edition and it runs without a hitch.  It has a PCIs 2.0 x16 video card slot.

It's not a bad system, all things considered.  I already know we can upgrade the RAM to 8GB, no problem.

Obviously the issue with upgrading his system is: 

- The video card (what card, will it work with system, will it work with slot, will it work with power supply)

- The power supply itself (maybe)

After looking at the "Dell recommended" hardware, they want $159 for an ATI Radeon 4350 HD which is a huge amount of money for a card that is arguably only one step about the 2600 XT and at least 3 year old technology.  The other cards offered are even less of an upgrade.

After doing a lot of research, I found that the newer ATI cards are a lot less money, but most of them require a PCIe 2.1 x16 slot.  I know that PCIe 2.1 cards are SUPPOSED to work in PCIe 2.0 slots, but knowing Dell as an OEM, my fear is that they have done something to the port to only work with their hardware.  So, I decided to look at PCIe 2.0 cards, the majority of which are Nvidia GeForce cards.

Comparing the ATI 4850 HD card with 512MB of RAM (which is what I have on my computer), and the system requirements for RAGE and Crysis 2 (both of which run very well on my system) the card I am looking at is either the Geforce 9800GTX or the Geforce GTS 250, which are recommended for RAGE.

Those video cards should fit into the tower case (I have to look at dimensions for the GTS 250), and they should be compatible with the PCIe 2.0 slot since that's what they are rated for.

Having said that, the power supply requirements (or recommendations) for the GTS 250 is 400 watts.  Since the XPS 420 only has a 375 watt power supply, I was looking at upgrading that with a Corsair 500 watt power supply, but only if really needed.

OK, so my questions:

1) Do you think the Geforce GTS 250 card will work with this system?

2) If I upgrade the power supply to a Corsair 500 watt, is this going to fry anything in the system?  Will it be compatible with the mainboard?

My friend just doesn't have the money to buy a new computer system, and it would be a waste of money to get an ATI 4350 HD card for $160 bucks when we card get a card several generations higher with a much better power supply for roughly the same amount of money.

This, obviously, will be the "last gasp" for the XPS 420 system.  Any further upgrades will be highly unlikely.

Opinions?  Suggestions?

Thanks!