I'd recommend getting a 1500W PSU to handle that setup, changing the CPU to a single-core Intel Atom and using the onboard intel graphics to play those 1990 games maxed out.

Now, seriously. Your current PSU is just fine. Get a better video card, if you don't have the extra money to spend on it, get an AMD system or change that Intel CPU to a cheaper one. I would recommend you getting a FX-8350 and a AMD motherboard anyway, which is normally cheaper than an Intel system while providing similar performance. About your HD, you can get a 250GB Velociraptor or buy a 32GB SSD to use as smart cache for little extra cost, it'll help a lot your system.

"OS: Windows 8 64 bit"

Please refrain from choosing Win 8 and choose Win 7 instead. Unless you've already used Win 8 since it came out and deliberately decide to keep using it, I suggest you don't.

Depends what he intends of doing but most likely even 8350 is overkill honestly.

Ive personally tested 8350 with 4 cores disabled and it has almost no impact on gaming performance.

Something like FX6300 and MSI's G43 mobo are plenty for gaming, productivity or whatever else you throw at it and wil probably cost together less than the intel 4670k alone. 

Personally I'd go for a slightly more powerful GPU and if you can afford it, a small SSD (as a boot drive) on top of your 500Gb HDD. It's amazing the difference it can make to general usage and will reduce the load time of games you store on it.

I would also look at getting a proper branded PSU. 650W should be fine, but you don't want it frying everything else. I've generally found Antec to be fairly reliable.

Probably, but since those FX CPUs don't have a "normal" CPU core and the cores itself have very low IPC, I sincerely wouldn't buy anything less than the 8xxx series since I try to keep my PCs for a very long time and the 8xxx series CPUs certainly seems more future proof than any other current AMD CPU series. Also, doing a quick search on google, the 8350 seems cheaper than the 4670k, combined with an AMD motherboard(which is also normally cheaper), I'm not sure going with a less powerful CPU is actually needed considering his budget.

You are correct sir oh and
 

Ok I found a slightly different pack that just has a 4570 (not k). Not a huge deal, also comes with a shitty psu but I found a good 750 watt corsair for $65 I will put in it. Also upgraded to the gtx 660 per suggestions (id rather put the other money towards a solid state than a higher yet card). 120 gb solid state drive. Total cost of about $900.
The $50 over budget isnt a huge deal...ill just have to lower my fun budget by a couple bucks a month.
To those suggesting amd, I was heavily considering it but Ive had bad experiences when installing amd units at workplaces and them not remaining "futureproof" despite having same benchmarks as the similar intels that I have installed.

Furthermore while it will only be used for gaming and internet now, I have multiple clients that this would be a perfect server for down the road to replace their current i3 2000 series setups.

I love windows 8. I upgraded my laptop that I just sold a while back and will never switch back to 7 on a computer I own.

Here is your $850 build.
http://i.imgur.com/uLsYQTE.png

You could swap the OS for Windows 8 if that floats your boat.

Go cheaper on the Ram and Case, but IMHO ain't worth it.

If you are primarily a gamer, the video card is the most important piece of hardware. - With that said... Any current socket 1150 Quad-core Haswell CPU is more than enough for any game at the moment.