My personal experience. I got the XTI/400D with the kit lens as well to start with. And I got the 50mm f/1.8 couple weeks after that without knowing why it is much better. Well, basically my cousin (who has a Nikon D3) told me just get it and I will be happy with it.
Since I am new to the world of SLR/DSLR and the 50mm f1.8 is not expensive so I took his advice and got it. AND ...... he is right! What a difference between the Canon XTi Kit lens and the 50mm! (at 50mm)
Yes, I do noticed that the newer 17-55mm IS Kit lens from Canon is much better than the one I got in terms of optical quality. If Photozone did not made any mistake, it is sharper than a lot of lens out there. I will say it is a good replacement for the XTi/400D kit lens.
But the 50mm is a different kind of animal. It let you do stuff that you cannot do it with the 17-55mm IS lens. If you want to have a nice Bokeh type of image at low cost, get the 50mm f1.8. Go to flickr.com and search for "EF 50mm f/1.8" and you will see a lot of nice Bokeh images that taken with that lens.
Personnally I do not care too much of the IS in this range although it is nice to have. If I need to take a wide angle, non-IS lens will works just fine in most of the situations. If you are thinking buying the 17-55mm IS lens just to replace the one you have now .... I will say save more money and get one that is even better. Something like 17-50mm F/2.8 Tamron.
So if I have to choose again, I will get the 50mm f1.8 first before I will get a replacement for the original kit lens.