No, the 8600 isn't terrible; you're just not going to be playing all games at max settings. Very few games will be unplayable (under 30fps) at 1280x1024. Crysis is one of them naturally.
If you can live with that, it's fine.
If not, you already know your options, many of which are around or under $100.
ATI has had heat issues with the 4800 series cards, but stability has not been effected. The 4850 in particular, actually runs hotter than the 4870 due to the single slot GPU cooler. The 4870 heatsink also uses copper heat pipes.
But yes, larger cases with excellent air flow/circulation are preferable, especially when Xfire is brought into the mix. If you have space, additional dual slot coolers are one way of dropping GPU temps, and if you want to go a step cooler, drop the stock cooler/fan and go with an aftermarket GPU mounted cooler with additional passive heat sinks for the memory modules (more trouble than it's worth IMO, unless you're overclocking GPU/memory). The simpler fix is to just use a control panel that enables manual settings of the GPU fan (noisy, but will drop GPU temps over 20 degrees).