My squad just got done building a system for a less fortunate member. Total cost was $500 (+$85 for XP)
-Cheap Rosewill Case
-Seasonic 520 Watt Power Supply (Mine came with a "powered by Corsair" sticker to put on the front of the case ROFL)
-Asus M4N68T-M motherboard
-AMD 3.2Ghz Regor Dual Core processor
-DVD Burner
-250 GB Hard Drive
-1GB 5770 ATI Video Card
-4GB DDR3 1333 RAM
With XP the system turned out very nice. With no overclocking, I could crank up FULL AA, 1024 textrues (+ HIRES), 1920X1080 resolution, all sliders maxed, all advanced options on, and 2048 Smooth shadow and buildings' shadows (but no other planes shadows) and could not get it to drop below 59FPS no matter what I did.
So for about $500 you can build a system that works well with AH right now. For another $100 or so you can have that system improved much more greatly (larger HD, more RAM, better case). A $1000 system should be able to handle most games with ease, and for $1500 you can build a nice system that can handle just about anything thrown at it.
So really it all comes down to what you want to spend...