PCI-E 3.0 cards are indeed backward-compatible with a 2.0 slot. I ran my AMD 7950 card on an old X58 mobo for a while before I upgraded to a Z87.
I would buy a GTX 770. The GTX 770 is, according to Tom's Hardware, "basically a GeForce GTX 680 with higher clock rates, improved cooling, and a lower price tag." A GTX 770 card with 4 GB VRAM costs about $60 more than the 670 card that Gyrene linked to.
Thanks for answering my PCI question. I read that some people with 7950's saw their letting out smoke after a few months but who know's if they were OC'ing them or not? Reading that makes me bit hesitant on the 7950's. I'll consider the GTX 770 but will read up on it first. The price is near my budget. Anything over 5 bills and Hammer (code name for wife) will launch a 5x ack attack. Which every direction I go on this I believe my PSU will handle it. I'll paste my system specs below.
Thanks
MB: GIGABYTE GA-EP45-UD3P LGA 775 Intel P45 ATX Intel
CPU: Intel Core 2 Duo E8500 Wolfdale 3.16GHz LGA 775 65W Dual-Core Processor BX80570E8500
CPU COOLER: ZALMAN CNPS9900 NT 120mm 2 Ball Low-noise CPU Cooler
RAM: OCZ Reaper HPC 4GB (2 x 2GB) 240-Pin DDR2 SDRAM DDR2 1066 (PC2 8500) Dual Channel Kit Desktop Memory Model
GPU: 1 - XFX HD-577A-ZNFC Radeon HD 5770 (Juniper XT) 1GB 128-bit GDDR5 PCI Express 2.1 x16 HDCP Ready CrossFireX Support
PSU: Corsair CMPSU-750HX 750-Watt HX Professional Series 80 Plus Certified Power Supply compatible with Core i7 and Core i5
CASE: NZXT TEMPEST EVO Crafted Series TEVO-001BK Black Steel / Plastic ATX Mid Tower Computer Case
MONITOR: 1 - Asus VE258Q 25-Inch Full-HD LED-Lit LCD Monitor with Integrated Speakers