Try using one stick at a time if you haven't tried it. Maybe you fried the ram? His motherboard has an nforce 2, it would work with all the athlon xps.
Maybe you got lucky or it actually was a good quality psu. But even if it does provide enough power, that doesn't mean it is providing clean power. Lots of random brand psus dont bother that much with voltage regulation and stuff, or actually meeting their rated wattage.
Get the 6800, it's much better. Not only does it have twice the pipes, but it has a 256-bit memory interface which owns the 6600. I'm absolutely sure you can find a 6800 for less money than that.
Reformat, and make sure you install some protective software right when you finish installing. If you have important data, try an anti virus + anti spyware, and defrag. But i think that if your system is that far gone, you should just reformat.
I would definitely go for a dual core. My friend's 3000+ venice performs better than an fx-55. He overclocked it to 2.78. A 4800+ would easily overclock to 2.6ghz, and would make your whole computing experience much better. The 4800 will run hl2 + 100 backround processes + winrar + a dvd ripper.