I have these questions asked to me. A lot.
What paper does J.K. Rowling write on to create the Harry Potter series? What typewriter did Hunter S. Thompson use? What species of quill and what formulation of ink did John Muir and Henry David Thoreau use? If only I could have the same advantages that they had!
To make a long story short, in tests performed years ago neither professional photographers nor amateurs could distinguish between 5 megapixel and 8 megapixel shots when printed at 8" x 10" size. The industry's dirty little secret is that new cameras have are overkill for almost all photographers, and they have been for years. If you're not taking the pictures that you want, it's probably your expectations and your process that needs adjustment, not your equipment. In other words, the camera is not your most important consideration, nor is it your most important tool. You'll find that between your ears. At least I hope so. (And now that I've saved you $500-5000 in hardware upgrades, you send me my commission for that gain via Paypal.)
Now I'm going to contradict myself and give a few exceptions. First and most obviously, if you want to print a lot of photos in sizes of 40" or larger, a little more resolution than 5-8MP might help (although my 8MP files print well up to 20" x 30").
Next, I can vouch for the fact that high ISO shooting capability is one of the most important improvements that DSLRs have added in recent years, for handheld use in low light (portraits, weddings, concerts, fireworks, Chinese New Year Parade, etc.), night landscape shots (see my new night shot gallery and recent Milky Way shots on Flickr) and so on. Specifically, a friend asked me about the Canon Digital Rebel T1i/500D, and the reviews on sites such as Steve's Digicams verify that it delivers well on its promise for high ISO shooting.
If the Canon T1i had the 40D's 6.5 fps for sports (kids sports, skiing, etc.) and full 1080 resolution HD at a full 24 frames per second it would be perfect. Perhaps there will be a "60D" update to the 50D which adds these features. There's a show in September where new models are often introduced, and if we're lucky, the 50D replacement could be shipping by Fall.
In the meantime, the Canon T1i is a reasonable upgrade for indoor, sports and outdoor low light shooting.
Whatever you do, consider setting aside some budget for the Canon TC-80N3 Remote Timer Switch, which will allow you to do time lapse photography (including of the earth rotating under stars at night with high ISO shooting). There are a number of programs that will enable you to combine a series of downsized JPG still frames to make an HD movie. One nice benefit is that you can run the individial frames through a batch editing program like Adobe Lightroom so you can efficiently do a ton of edits and enhancements and have the video turn out with stunning quality.
