The lenses you use are more much important than the camera body, with respect to your end results.
I currently have and use all the lenses you are considering and discussing, except for the 17-40. I've used that lens in the past occasionally, but never owned it myself.
Frankly, in my opinion they're all good choices.
In case you haven't used them before... Primes take some getting used to, it's a different style of shooting. It's my prefered way of shooting, in fact... but might not be yours.
Zooms such as the 70-200/2.8 and 24-70/2.8 are top quality and great performers, too. They are at least a full stop slower than the primes, and are larger, heavier and more expensive.... but those two lenses take the place of about 6 or 7 primes. There are situations where there isn't time to change lenses, or where it's unwise to do so due to dust, etc.
"Invest" in your lenses... You'll very likely be using them on future cameras, long after the 40D and even the 7D are "old news" and you've moved on to a "9D" or something else. I started using the Canon system in 2001 and some of the lenses I first bought have seen use at one time or another on about a dozen different film and digital camera models over the years (Off hand I can think of EOS-3s, Elan 7E/EOS 33, 1V HS, 10D, 20D, 30D, 1D MkIIN, 5D, 50D, 5D Mark II... probably forgetting one or two).
You sound to be committed to the 1.6X format, so might consider EF-S lenses, too. I thought I would be going back to full frame a lot sooner than I did, so largely avoided the lenses designed for crop sensor only. Looking back at my decisions, I think was wrong. I now have the Tokina 12-24/4 as my only "crop sensor only" lens.
Among the EF-S, the EF-S 17-55/2.8 is a real standout that would pair well with a 70-200/2.8 IS for example.
I'm glad to see you aren't hung up on the L designation, either. There are plenty of non-L lenses that are very good and serve well. The 85/1.8 is a very good example.
I used the 50/1.4 and 85/1.8 as my primary portrait lenses on crop sensor cameras. After getting back into full frame recently, the first lens I added was the 135/2. It's a great lens on either format, of course, depending upon what you are shooting. If you keep your 17-40, though, I think the gap would be pretty huge. I suspect the 85/1.8 should be your first choice.
Have you considered buying used or refurbished to help the budget go a little farther? I'd think twice about buying a used camera, because of their complexity. I've done so, but only through a dealer who offered a reasonable warranty. Lenses, on the other hand, I can check out pretty quickly and easily myself. There's less to go wrong and it's pretty obvious when something is damaged or out of whack. Several of the lenses in my Canon kit were bought used, both from dealers and from private parties. I'm careful and haven't had any problems, knock on wood.
