I think you'll be happier if you can stretch that budget... You can save some by going with a slower Intel cpu now and then upgrading later, but don't go AMD. They hosed everyone with their socket 939 debacle and I don't trust them to let me keep using the same mobo.
I like ASUS motherboards for quality and features right now, intel dual core cpus for price performance ratio and upgradability, and nvidia vid cards. To avoid having to replace it soon, I'd go for the cheapest nvidia GTX 260 you can find. For memory, you can get 2x2GB kits. I'd go DDR2 instead of DDR3 as well, for price, even though DDR2 is a dead end when intel finally retires core 2 duo. But for now you can get a lot of performance with core 2 duo cpus and DDR2 at half the price of a new i7 cpu/mobo with DDR3.
I've had good luck with gskill memory, their prices are great for "name" memory, and my one return/exchange with them was easy.
A quick look at newegg gives me this:
mobo - ASUS P5Q $118.99
http://www.newegg.com/Product/Product.aspx?Item=N82E16813131295CPU: Intel Core 2 Duo E8400 $167.99
http://www.newegg.com/Product/Product.aspx?Item=N82E16819115037Memory gskill 2x2GB DDR2 1066 $47
http://www.newegg.com/Product/Product.aspx?Item=N82E16820231241 (you can save $5 by going with DDR2 800, but why?)
Vid card: ASUS Nvidia GTX 260 (216 core) $164.99 (free shipping $144.99 after $20 MIR)
http://www.newegg.com/Product/Product.aspx?Item=N82E16814121316That's $498 before shipping, a bit over $500 after shipping. You might save some by finding more rebates or seeing if a combo deal exists for those or similar parts. While it has nice upgrade paths, you won't need to upgrade it anytime soon. Upgrade options down the road (especially if you go to win7) would be more memory and maybe a fast quad core cpu since win7 deals with that better. Win7 also lets you use DX10 with that vid card.
This is my "bang for the buck" shopping list, and it's nearly identical to what I'm running right now... You can save a bit here and there but you'll lose a lot of performance and features while saving only a little money.