Since Skyrim is fast approaching, I'm looking for a new computer, primarily for gaming. I would like to build it myself, but I'd have no idea where to start.
I'm looking for something that can run most new games on high settings, especially Oblivion, and Skyrim when it arrives. My budget is around ￡500. Thanks.

Ouch. Gonna be a bit short on the budget there. Gonna guess you are in England?

What can you re-use from your old system? Keyboard/monitor/mouse/speakers/etc.?

I can reuse my monitor, keyboard, mouse and speakers. I basically just need the actual tower.

Are you from the England if so then look at http://www.overclockers.co.uk/

Tom's Hardware is a good site to visit for system building ideas. In fact they just did a "System Builder Marathon" last month (Mar 2011), featuring builds in various price brackets. Prices are of course in English so you'll need convert to your local currency.

Tom's also has monthly articles on the best gaming CPUs and graphics cards at various price points. Lots of other interesting stuff too, but those should get you going.

I'll not provide links. Googling should find Tom's easily enough.

You can get something like this...

CASE: http://www.ebuyer.com/product/172779
CPU: http://www.ebuyer.com/product/166518
MOBO: http://www.ebuyer.com/product/218921
RAM: http://www.ebuyer.com/product/240501
HDD: http://www.ebuyer.com/product/173804
PSU: http://www.ebuyer.com/product/240999
GPU: http://www.ebuyer.com/product/262260

That should be under ￡500. I hope you don't need an OS disc...you didn't mention that you need one.

The X2 550 processor is a dual-core chip that has a very strong chance of having two extra cores unlocked to become a quad. The motherboard I linked can allow you to unlock those extra cores, but it's not guaranteed that the chip will unlock (good chance though). There are guides all over the internet on how to unlock it.

I've only used one popular website to link you parts. There are other sites that you should cross-check prices like:
http://www.scan.co.uk/
http://www.cclonline.com/
http://overclockers.co.uk/
http://www.amazon.co.uk/

Thanks for that. Would all of that be easy to put together? I have very little experience building computers. The furthest I've ventured into that area is inserting a new RAM card.
Just so I can get an idea of how powerful this would be, how would Crysis run on it?

Also, I'm wondering if it would be a cheaper alternative to just upgrade my current system? Here are the essential specs:

CPU
Intel Core 2 Quad Q8200 @ 2.33GHz
Yorkfield 45nm Technology

RAM
4.0GB Dual-Channel DDR2 @ 399MHz (6-6-6-18)

Motherboard
PEGATRON CORPORATION Benicia (CPU 1)

GPU
ATI Radeon HD 4300/4500 Series (MSI)

I'll be running games at 1280 x 1024, maybe on my TV as well, can't remember the resolution, but it's 32" if that helps.

Thanks.

You could probably upgrade your CPU, and video "card" (I think yours is currently onboard?) for less than 500, and have a pretty capable machine.

I know the video card isn't on board, so it should be easily replaceable.

What is the make/model of your current system? (or, what mother board does it have in it?)

Power supply rating would be good to know too.

You should have mentioned that you had this system earlier...would've made life a lot easier. Just a simple GPU and maybe PSU upgrade would go a long way. The GTX 460 is a good card for your system with the same power supply I linked.

GTX 460: http://www.ebuyer.com/product/247309

Another upgrade would be the CPU, but you are on an obsolete socket and quad-core CPUs for LGA 775 are not cheap...like the Q9550. Also, I'm not even sure if your motherboard will support it.

The GTX 460 should be decent with your setup as it is though.