I don't know gaming, but i liked these recent askme threads on building PCs:
http://ask.metafilter.com/150949/Help-me-build-a-new-PC
http://ask.metafilter.com/149921/What-goes-in-a-good-PC-these-days
and one of them points to this page:
http://forums.somethingawful.com/showthread.php?threadid=3241890

Hey, thanks DarkForest. I had the two Asks bookmarked (and 3 more besides those) but not the SA thread, will check that one out.

Check the Ars Technica system guides.

I'm no PC-gaming expert, but I would guess that a stripped-down Windows XP install might be the way to go, OS-wise. It's easy enough to set up a dual- or triple-boot, though, if that's your thing.

You can get some good advice over at MeFight Club (MetaFilter spin-off gaming community).

Is this going to go in your Woman Cave?

I misread this as "build me a great gambling machine" and pictured an iconomy who had really gone off the deep end, clutching the Racing Form in a sweaty palm while gnawing nervously on the end of a cheap cigar. But if it works we'll all be RICH!!!

The most recent ArsTechnica or TechReport system guide, whichever price point is about what you were planning to spend. You can look at cases on Newegg to see which have bigger windows and more blinkenlights. Note: blinkenlights, especially blue leds, seem like they might be nifty but in real life are HORRID ANNOYANCES THAT BURN YOUR RETINAS ARGH.

OS, I'd just go straight for Windows7. Especially if you're going to be sharing this machine with a kid/teenager -- the normal way to set up Win7 or Vista is with one administrator account and then user accounts for each use. If you don't give him the admin password, he'll need you to install stuff but his ability to fuck up the machine will be drastically reduced.

Frankly, as a bit of futureproofing I might just go to 64-bit Win7 and get 6 or 8 GB of ram.

I was surprised at how easy it is. About the only parts that might surprise or be difficult are installing ram (you might have to push hard) and attaching the heatsink.

Speaking of which, it looks like the core i5 uses those damnable pushpin things to attach the heatsink. Hate them; it's hard to tell when you're done (or at least was when I did it, but the machine runs at a reasonable temperature). I wish I'd just bought a bare CPU and a non-stock heatsink that used screw-type mechanisms to attach.