When I rebuilt my PC, I got the i5 2500k and the nVidia 460 SEv2. At the time they were rated best bang for buck, although not the most powerful. A year later they're still running great, and I haven't even overclocked the processor yet. If you decide to do the separate CPU/GPU here's a few suggestions:
1. Make sure you have enough fans. A standard PC case likely won't have enough and you may run hot. I'd recommend adding 1 extra fan to the interior of the machine to circulate more air.
2. Make sure you have enough power. You'll probably need at least 700 Watts, and make sure you add up what all your components need or else your computer won't start.
3. Although it's not as fun of an OS to use, apparently Windows 8 is best in terms of gaming performance versus 7.
I put Windows 8 on my gaming build last year. It was a little strange at first but now I barely even notice the OS. I almost always just boot up and go straight into Steam. Outside of the initial setup, I haven't spent much time screwing around in the OS.
I would still recommend a separate GPU but if he is on a limited budget he could always go with an A10 APU now and then add a discrete GPU later when he has more money. I recently put an A4 APU in a computer I was building specifically to be a DVR and serve media to the rest of the devices around my house. I was going cheap and it packed a CPU and graphics into a $45 package. It seems to be plenty for the purpose I built it for.
Anyways, the reason I mention that is that the APUs come with a list of AMD GPUs they can be paired with for dual graphics support. When he has some money saved up for a better GPU he could get one on that list and have even better performance. You can always use a GPU that isn't on that list and have it take over all the graphics duties but it's another thing to consider. The more I think about it the more appealing APUs seem for budget builds.
If he has extra money laying around and wants to get into the tinkering part of the hobby he can skip the APU and go with an Intel i5 or something in the AMD FX series. Those are much better for overclocking and things like that. If he wants to overclock the i5 model number needs to end with a K and the AMD FX CPU should be a black edition.