+1 for VC/Win7 and then monitor.
Really all your going to gain from a monitor is widescreen, and a higher resolution. That's also gonna be lower FPS on your current hardware.
a new VC and Win7 means better Image Quality, which your monitor can still display. Sure it might be nice to have a larger screen, but really, wouldn't you rather have a nicer image first?
a 460 and Win7 64 bit (home will be fine BTW, and so thats about $100) will give you DX11, a better image, and update your rig nicely. You've got a quad and 4gb of ram, so your good there.
Plus, your the dad, unless your kid payed for his Monitor, you can always tell him shit runs downhill and "borrow" his Asus 23" til you get a new one.
Also, if either of your kids are in College, you might be able to score a free copy of Win7 through the MSDNAA.
But yeah, 460/Win7 64bit first, monitor second. Theres still a ton of people playing on CRTs, and they do provide good image and no refresh rates, they're just huge.