From a 400D you would notice a big differance upgrading to a 40D, A good example can be bought for around £300 these days. In my own opinion i would say getting a body such as that and pairing it with the highest quality glass you can afford is the way to go. Camera bodies can and will always be updated where as the lenses more or less last a lifetime. Dont forget if budget is a problem, High quality Canon L lenses can be hired relatively inexpensively and will make the world of difference to your photography.
There may be many choices of camera to upgrade to, whichever you choose always aim to put good glass on it and you wont go far wrong!