You are correct, mostly. You can pick up a Radeon 6850 and, with a good 450w or decent 550w power supply, you will be just fine. Really, if you plan to game for a few hours at a time, I suggest 650 watts. Overkill? Yes. But there is not as much stress as there would be on a 450w, and very little in the way of price difference. You can find tools to DL that will assist you in knowing what you really need. Honestly though, unless you plan to spend 550.00+ on a high end power hungry video card, and are running the latest processors, 2 or 3 drives, 2 optical drives, and ect., you should have no reason to get above 650w.
As for what video card, I will toss my hat in for the Radeon 6870. Nice bang for the buck. You can pick one up for 160.00 on newegg. Personally, I purchased the 6950 for 240.00. There is a fairly significant bump in performance between the 6800 series and 6900 series.
