Hi Muzzlehead and welcome to SimHQ.
I recently upgraded along the same lines (but with a bit more of a budget).
My new rig:
i5 2500k (get the unlocked k version, easy to OC to 4.3 Ghz on stock cooler)
Asus P8P67 pro
2X4 GB DDR3 Ram (google recent Anandtech article re: diminishing returns past DDR3 PC1600- get the cheaper ones)
AMD 6970
450 GB Velociraptor
Win 7
I'm very happy with it

Pricing it out at New Egg:
i5 2500k = $220
Asus P8P67 pro (or equivalent)= $180
the GTX 570 1GB (depending on sim you may want to consider a 1.5 or 2 GB card) = $325
2X4 GB= $80
Brings you to roughly 800$ +/- with shipping on top.
about $150 left for an HDD, a case and PSU... not a whole lot of room left.
EDIT: Forgot that you'll need WIN7 = $100 so more like $50-$100 left...
If you have trouble staying in the 1K budget I would suggest re-using your current case and PSU (I *think* 610W should be enough; my 650W is OK for the 6970)
You could also start with one stick of 4GB RAM and add another down the road, though if you absolutely have to you could re-use the 2 GB you currently have.
The HDD could be re-used in the new build too.
Remember, the Obersturmbannführer won't know if a new stick of RAM bought on sale has been added in the middle of the night in a month or two

Hope this helps you come to your decision,
C_G