The short answer is "ETTR then ITTR". In other words, use the highest ISO you can without blowing important highlights. High ISO reduces noise.
Here's the long answer. One often reads that high ISO causes noise. The correct meaning of that phrase is this: "At low ISO, I use normal exposures. At high ISO, I use severe underexposure. The underexposure causes a tremendous increase in noise. Increasing the ISO helps to reduce that noise a little, but it's not nearly enough to make up for all the noise caused by underexposure." There is one exception to this: going from ISO 100 to ISO 200 decreases noise so much that it *almost* makes up for the underexposure (it only has about 1/3 stop more noise). That is why ISO 100 and ISO 200 have very similar noise levels.
ETTR (Expose To The Right) means to increase exposure (f-number, shutter speed, etc.) as much as possible without blowing the highlights you care about. ETTR is the best technique for reducing noise. A single stop of exposure (e.g. f/2.8 instead of f/4) can reduce noise a lot more than even 2 stops of ISO (e.g. 400 -> 1600). That doesn't mean ISO is unimportant, just that exposure is more important.
Every camera has different performance at each ISO. The way your 50D works using "1 stop" ISO settings (not 1/3-stop) is that higher ISO always have less noise than lower ISO until you get to 3200. In other words: ISO 200 has less noise than 100. 400 has less noise than 200. And so on and so forth until you get to 3200. At 3200 and above, the rules change. 3200 has the same noise as 1600. 6400 has the same noise as 1600. 12800 has the same noise as 1600. Therefore, ISO 1600 is the highest ISO that you should use.
The only reason to ever go above 1600 is for convenience: it's necessary for JPEG (if you don't shoot raw), it gives you a brighter review image on the LCD, makes it easier to use autoexposure, flash metering, you don't have to make adjustments in post processing, etc.
But there is a cost associated with high ISO. That cost is clipped highlights. For every doubling of ISO, one stop of highlights are lost. That is why I advise folks to use ITTR: ISO To The Right. That is, increase ISO as much as you can on every shot, without blowing important highlights. But don't go over 1600, as I said above, unless you need the convenience features.
I hope that wasn't too much technobabble.