Your right to be looking at a 6800gs id say. I was gonna jump up and down saying "512mb is not worth it", but looking at the price difference over the 256mb version.... £8 its worth it. The other option is an X800gt on scan for £143, but id definately suggest going for the 6800 over it, especially if oblivion is one of the games your playing.
Now the PSU, this is one area that you do not want to be skimping, however that also doesnt mean its necessary to be spending £60 or £70. I had a look on scan and although the lower rated psu's like the 420w enermax coolergiant @ £38 would be great (basically the same psu as is powering my system) id go for the bargainous
http://www.scan.co.uk/Products/Produ...oductID=156689 as its only a few extra pounds but provides a fair bit more ooomph and newer connectors so it would be great to transfer to a newer rig if/when you come to upgrade.