Assuming your 500w PSU isn't complete junk or 5 years old, you should be able to just plug and play with w GTX260. You system won't be able to utilize 100% of the videocard, but there is always a part of any computer that is the limiting factor. I personally prefer my limitation (overly negatively referred to as a bottleneck) with the CPU, allowing the GPU to spend more power on shiny stuff, instead of just keeping up with the frame rate the CPU is pushing.
You will see a massive performance increase with the 260 over your 8500gt, even if you never see its full power being utilized in your box. There might be a case to be made for going with a lower power card, especially if the PSU is old (5+ years) or if you got it for 30 bucks at a flea market.