Hello if i put a ECS 8800GT 512MB DDR3 PCIe into a Gigabyte GA-MA770-S3 AT
would the mobo utilize the full power and speed of the gfx card since its 2.0?

PCI-Express 2.0 doesn't matter for your x16 slot because the graphics card doesn't need to get data that fast.  The x16 slot for AMD 770 chipsets is PCIe 2.0 anyway, but not like it matters yet.
 
What's going to make youre GRAPHICS card slow is that it won't get information from the CPU fast enough.  That's a CPU problem, and you likely won't reach the full performance level of your graphics card.

So if i want to get the full performance of the vid card i need a faster cpu?
How fast you reckon?

Depending on your game settings, probably at least 3.0GHz from an AMD Phenom.  An X3 will be just as good for games as an X4.
 
You can overclock to around that speed with a good Phenom X3.

My system does really well with the same ECS and an AMD 5400+, it's prob not FULL power but I can get just under 10,000 3dmark 06, and play crysis at very high 1024x768 and 1280x1024.

Any middle of the road dual core CPU running at 2~2.6 Ghz will be fantastic with an 8800GT. Of course the faster CPU the better, but the gains you see as you scale upward from here are pretty small.