My PC can run Skyrim fine at high settings at 1680x1050 in open world and interior space. However the fps drops significantly in towns like Markarth.
I am not sure which part of my hardware is lacking, as these are my current specs.

Intel Core 2 Quad CPU Q6600 @2.40GHz (Not Overcloakable)
Gigabyte Nvidia Geforce GTX 660TI 2GB 1032/1110MHz (Base/Boost) GPU Clock
4GB RAM
Windows 7 Ultimate 64-bit
Fatality 700W Power Supply

My current budget is $800 USD, any help on what I need to upgrade to run Skyrim smoothly on high setting would be greatly appreciated.

$800? thats overkill lol but if you insist then buy a Ivy bridge i7 3770k and ASUS P8Z77-V Deluxe and add another 4GB of Ram for all your modding needs.

I can already run Skyrim smoothly at Ultra with my Rig, what your only missing is a better Porcessor a i7 is not needed as a i5 will perform the same way when gaming but since your upgrading and if you can afford it why not get the best.

Thanks, however I kinda want to know whats the cause of Skyrim running in slow FPS in towns, is it because of the stock CPU? As for the motherboard, why not a LGA2011 compatible motherboard?.

That's a nice PC setup, but that low clock speed will bug Skyrim. A 3Ghz overclock it would run fine I think. But if you have the money I would just buy this: http://www.newegg.com/Product/Product.aspx?Item=N82E16819116504

Skyrim should love that CPU.