I have owned a Dell XPS 400 since they released them back in October 2005. I just built a new machine to replace it, and I did so for the following reasons:
1) Lack of space for better graphics cards (most high end cards for gaming run close to 10 inches in length nowadays), unless you buy an XPS 700 series (the only Dell with a case REASONABLY large enough to handle high-end graphics cards)
2) Lack of a good stock PSU (only 375 watts in the XPS 400), and difficulty upgradeing (check forums, lots of people have issues upgrading PSU's when it comes to Dell because they tend to use BTX instead of ATX). If you want a gaming machine that is going to run a good graphics card, you will need a bigger power supply. You don't sound like you're going to run SLI (2 cards at once), so if you're going to maintain just 1 card then a 500 or 550 watt PSU would probably suit you just fine.
3) Cooling. If you're buying an XPS machine it's closer to a gaming rig than other Dell lineups, however, if you really want to have a "gaming" machine that plays all the latest and greatest stuff, you WILL need a better graphics card and if we're talking Geforce 8800 whether it be the cheaper GTS version or the GTX, cooling is something Dell doesn't offer many options on. Those cards run very hot (GTX will get up to around 70 degrees celcius at least without 3rd party cooling)
Also, you have to look at what resolutions you want to play your games at. If you want higher resolutions than 1280x1024, new games coming out are going to slow you down with a 512 MB card. The Geforce 8800 GTS 640MB card is a great buy for the money. Higher res = need more video ram. Games are also leaning more towards using heavy use of shaders and moving away from high polygon counts as in the past, so video ram is becoming more of a necessity.
As far as graphics cards go in general, I would wait a few months - ATI is going to release a new line of high end cards that will force Nvidia to roll out something better than the Geforce 8800 GTX, which will drive prices down on those cards. I would pick up a GTX once prices drop because the card is a monster and it isn't going to remain in the 500-600 dollar arena for much longer.
I would personally re-evaluate your decision to not build your own machine because once again, Dell uses BTX cases and motherboards, which are NOT standard. Also, Dell tends to use chipsets that are pretty much junk for their motherboards. If you ever wanted to upgrade your processor and keep using your Dell, you are forced to keep using the motherboard. New chipset came out? Too bad. New type of socket? Sorry, can't upgrade with a Dell.
Also, now is a great time to build on your own because Intel just slashed prices big time on their Core2Duo chips that pretty much have put them right on par with prices of AMD and Core2Duo simply outperforms AMD right now.
I'm sure I have more rambling thoughts in my head but hopefully some of this was useful.