Hi Joe just to summarise a few things:
1. What version of Windows 7 32bit do you have, as some versions will allow for both the 64bit and 32bit on the same key
2. Flight Sim is extremely CPU intensive although it uses a lot of GPU as well. What resolution do you plan on playing it at?
3. 64bit is required for full 4GB RAM useage, which i would recommend, even if you dual boot another installation along side the current one.
4. Also, that PSU (although it is 650W) only has 30A on the 12V rail (360W) which should be enough for most mid range cards, but don't get anything too power hungry (ie nVidia 460).
I would wait for now, get your 64bit OS (drivers available at gigabyte - i checked), and review the ATi 6 series cards due very soon. Or you could go for a HD5850 which will certainly do a good job now. Finally, if money isn't too much of an issue, i would definately upgrade your CPU. Reason? You will probably be putting a new OS install so its a good time to do it, plus a nice quad core CPU such as the Q8400 which your motherboard supports (i checked)will not only make FlightSim run extremely better, but also not bottleneck the new GPU and provide excellent HD decoding for blueray.
My suggestion:
Get 64bit Win 7
Get a new quad core
http://www.newegg.com/Product/Product.aspx?Item=N82E16819115057
Wait until the HD 6 series arrives.
or just put a HD5850 in there.