New body or lens?

I've got a Rebel XT, about six years old. I'm taking indoor youth basketball shots without a flash. To get them, and stop the action, the ISO is high. The pictures are fine for Facebook posting and the like, but too grainy to print at 5x7 or bigger without noticable fuzziness.

I'm thinking about stepping up to a better lens -- something with a step or two wider aperature, and maybe an L lens. If my goal is to make some of my prints of these pictures better, is my money better spent on a new, higher-end body?

What lens do you have so far

unfortunately the answer is probably both. Something like an 85 1.8 would help with indoor shots. But the ISO performance is not the greatest on the xt. See if you can sell your xt, pick up a 40D, or a newer rebel and still get a faster prime. Doesnt need to be an L, you might have a compromise here

I currently have an XT and have noticed the ISO performance being, not so great.

I'm upgrading to a Canon 40D I think, and hope to invest in some better glass. But for now, I think I'll have to make do with a standard kit lens and my 50mm 1.8

Both. You need a faster lens and a camera with better iso.