Edit again: Or not, hadn't noticed the 260 got revamped. The processor doesn't fit your specs though, triple core instead of quad. Ignore me.
The radeons are a better value for your price range. ATI has nothing on Nvidia for the top end, the 295 cleans up on the 4870x2 like it's a second gen card, but that's for the $1500 price range, you're not spending $500 on the card. I recommend checking the q3 2008 vga charts at Toms Hardware to find the right card for your budget. By the way, this advice comes from a guy that's never had a Radeon he didn't hate. Nvidia is having some driver problems, like the bloom issues people are experiencing with Sins, the Radeons are better priced performance wise, and have better drivers these days. If you want sheer power, you go for a 295, if you're on a budget, you get a Radeon.
For processors... This is a hard one. Your budget screams AMD Phenom, but the I7 is flat superior in every way. I doubt there is much in the way of a future upgrade if you get the Phenom. This is probably the best possible processor for you to get, now. You can seriously overclock this sucker even on stock fans. I recommend upgrading them anyway if you OC, but a quad core 3Ghz processor doesn't really need a lot more oomph. They aren't real likely to keep using these sockets for a long time though, and I expect they've about run out of room on the Phenom. The Nehalem on the other hand is, currently, capable of vastly superior performance. Even the 940 spanks the living shit out of the best that AMD has to offer, the top of the current Nehalem chips is disgustingly more impressive than the Phenom line will ever be. The problem is you'll be spending 200 bucks more to get a comparable processor in the 920. You will have triple channel ddr3 ram though, which also costs a little more. A better cooling system is mandatory with an I7.
You can't go wrong with the I7 920 and a decent x58 mobo, but it's going to cost you almost 600 right there, and another 100 ish for six gigs of ddr3 ram. If your limit is 1k, that leaves you around 350 for the video card, drive, case and power supply, way too short. If you can break that barrier, you'll have a much much better computer to upgrade two years from now.
Newegg generally has the best prices, and you can get free shipping. As they're an outstanding bunch that fixes problems and treats customers very well, I highly recommend shopping with them even when you spend a couple bucks more, which is very rare. They should have just about everything.
If you get a board that supports triple channel ram, go with 12 gigs if you can swing it. Lots of ram is going to be very very useful in the next couple years. Don't get a setup with support for less than eight, you wont really need it, but you'll wish you had it. It's just fine to stick with two 2gig chips for now in a board with four slots and add in the other two later, but you're really going to want all that ram with windows 7. It will be screaming fast for every day applications if you can cache them all.
Wander around New Egg a while and see what looks good, plenty of people around here will tell you if you've done a stupid after you post what you're planning to get.