Flash Or Lens

The 50mm is a double edged sword, it's a great gateway into the difference prime lenses can provide in image quality but it's very flimsy and don't autofocus well and is "un-ergonomic" to manual focus.

So after you get a flash this time get a good prime with USM/HSM it'll come to good use with a 7D.

I love my flash! This picture was taken with the 430 EX II bounced off the ceiling.

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with $300 to spend I would recommend the following:

Nifty Fifty + 550EX or 430EX (original)
or
420EX + 55-250IS

Flash is the least expensive route to low light success, for sure. Not easy, get a good book and practice setting up for different type shots so you won't have to fumble with it when you need a quick set up.
Xti is a great camera, I really enjoyed mine for the three months I had it. You will appreciate the quality build of the better cameras when you can step up.

i hope that after a month this has already been settled...

Flash. I just bought a refurbished flash and saved some $$. I love it!

Both! Get a 50mm for portraits, around $100, then pick up a used flash off ebay for under $200. Check the 430EX (or EXII, which is a little more), the vivitar 285HV, or a LumoPro LP120.