I recently spent about £500 on rebuilding my PC, and it handles most games pretty well. On WoW I get 45 FPS with the graphics set to quality for the most part. The specs are something like this:
Motherboard: Asus M5A97 R2.0
CPU: AMD 8350 Black Edition (4.2 GHz, 8 cores)
Graphics: AMD Radeon HD 6450
RAM: 12GB mixed brand (just cheap, 1333 MHz stuff)
PSU: Cheap 600w PSU from Amazon
Case: Cheap X11 "Advanced X-Station" case from Amazon.
Extras: PCI Firewire card.
Pricing is like this:
Motherboard £80
CPU £150
Graphics £60
RAM £40
PSU £30
Case £20
PCI Card £20
Total cost of around £400, throw in a hard drive (I got a Seagate Baraccuda 500GB a while ago for about £50) and you're looking at around that price tag. My graphics card is actually now available for £30 or so, but I bought it a while before rebuilding, so I paid a bit more for it.