At 1920x1080 he's pretty much screwed with 320MB ram.
Tune down your resolution and limp by, or buy a new videocard and be a happy camper. There's been so many people before you who had the same dilemma, but in the end people who simply bought a new videocard and enjoyed it right now, seemed to be happier then those who waited.
You don't even have to buy ATI, you could buy a GTX 260 and see a huge improvement, and at 1920x1080 it's still pretty damn fast. If you wait for the GTX 470 / 480, you could be waiting 2 months or more, for a card that's most likely to be $300 or more. But right now, there's good value in the HD 5850 that can be enjoyed right now (if it's on sale somewhere).