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I'm don't think the 8600GTS dropped in quality, but that the 8800GTS card is just so much more amazing in comparison. I also wanted some leeway, just in case DirectX 10 games came out that I was interested in, so I needed a GeForce 8xxx series or Radeon HD2xxx series card. (But, from what I read, Radeon/ATI isn't doing too smoothly right now.) I did look at the 8800GTS, but it was quite expensive. (I think it was almost double the price of the 8600GTS.)
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The big change these days is that the high end video cards are now more than 256bit interface. Where as in the past few generations, the high-end video car would be 256 and the midrange *ie 7600* were 128, which wasn't too bad. Now though the high-end are 384 to 512 , and the midrange are still only 128, meaning they just pale in comparison more to their predecessors. A lot of people would have liked have seen ATI and Nvidia step up and come out with a midrange card that had something like a 192-bit interface.
The problem with current dx10 cards too is that I would not buy them with the idea of playing future dx10 games. Even the 8800GTX and 2900XT currently run dx10 relatively... poorly =/. As for Ati's *poor* performance atm, that is due to a situation that is not unlike the whole N30 fiasco. Nvidia is a safer bet atm though, and I would have bought one myself over ATI this time around.
There's nowhere I can't reach.