Looking to upgrade! need opinion

It's all about the glass.

But...

Considering your tight budget you may want to upgrade your body to something that works with AF lenses, or better yet a d200/300 which will work with AIS manual focus lenses.

A d200 cost around $450 used these days, not only is it a much better body then a d40, you'll be able to pick from a FAR wider selection of lenses.

Here are some recommend lenses, none of which will work completely on a d40:

80-200mm f2.8 AF = same great optics as the 70-200mm f2.8 at 1/3rd the price.
105mm micro nikkor F4 AIS = amazing macro lens for $100 or less
50mm 1.8 AF = the lens every noob should have
50mm 1.4 AIS = a better lens then 50mm f1.8 AF for less $$
300mm f4.5 AIS = great telephoto for around $150
70-300mm f5.6 ED AF Zoom = great lens for the budget minded
 
I have the exact same setup (except for the flash), and frankly I would only upgrade if I wanted better ISO quality and more frames per second. I use the function button to change the ISO, and I don't mess that much with the white balance, so I don't care much for the extra buttons on the d90 or d200.

I would put just more money in my lenses, if I was you.

EDIT:

That said, if I didn't own a dSLR the d200 would be my choice over the d40x.
 
The Online Photographer: The Lens is Not More Important Than the Camera

You might like to read this as counterpoint to all the lens-lens-lens talk. Just to get a better and more complete perspective. it's entitled The Lens Is Not More Important than the Body; it's wise to remember to actually parse the title: the lens is not more important than the body; there's actually a critical relationship between the lens and the body.
 
For portraits a Tamron 60/2 macro and the 85/1.8 are my two favorites. The Tamron 60/2 is by far the best in my opinion super sharp and very fast. The 85 is awesome I have never used Nikons but Canon is very nice and I would expect Nikon's version to be right up with it. For Cameras I went from D40 my first digital SLR to the Nikon D90 I loved the camera and for portrait work I don't think you can find a better camera. I really miss it.
 
Thanks so much guys! All of you thanks alot, definately put things into perspective for me, special thanks to Djacoboc372 for the lens list. Also a special thanks to Derrel for that article. Both very helpful!
 

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