yeah your graphics card is the bottle neck.
don't bother with the 8800 ultra they're REALLY expensive, but the 8800 GT / 8800 GTS
its all here...
GeForce 8 Series - Wikipedia, the free encyclopedia
what you really need is a wider bus architecture the 8500 has only 128 which will play older games fine but will struggle with anything new new - ala Crysis.
The 8800 GT / GTS have 256-bit, which should do you fine.
But if you do want to splash out you can try and get a 8800 Ultra with 384-bit, but for the price doesn't equal the extra cost in my book!
Also if all else fails just buy two 8800 GTS's and whack those babies in Sli!!!