Here is what I would do in your shoes.
I would use the CDROM, Floppy drive, Case, Monitor, Keyboard, and mouse you currently use. Then if you wanted to start with an AMD system I would get this from newegg,
SOLTEK SL-75DRV5 (Purple Ray) VIA KT333 - $88.00
ATI RADEON 8500LE 64MB DDR CRT/DVI/TV - $87.00
AMD Athlon 1600+/266 FSB XP PROCESSOR CPU - $67.00
Samsung Original DDR333 PC-2700 256MB CAS2.5 - $85.00
MAXTOR Quiet Drive 40GB 7200RPM - $78.00
Microsoft Windows XP Home Edition - $90.00
Thermaltake VOLCANO 6Cu. Heatsink - $11.00
Total price is $506.00. This system should Overclock very well and you will be able to upgrade quite a ways before having to change everything out again. Here is a link to the list I put together for you,
http://www.newegg.com/app/WishList.asp?position=HISTORY&submit=VIEW&ID=139246
But if you want an Intel based system then might I suggest the following,
ABIT Model SR7-8X, SIS648 Based socket 478 Pentium® 4 ATX Mainboard, 8X AGP - $108.00
ATI RADEON 8500LE 64MB DDR CRT/DVI/TV - $87.00
Intel Celeron (Pentium 4 based) 1.7GHz 128K 400MHz FSB mPGA 478 Pin Processor Retail Boxed Version - $91.00
Samsung Original DDR333 PC-2700 256MB CAS2.5 - $85.00
SAMSUNG 40GB 7200RPM Model# SP4002H - $72.00
Microsoft Windows XP Home Edition - $90.00
Total cost is $533.00 but again the overclocking potential and upgrade path is very good with this setup. You can find the link to this equipment here,
http://www.newegg.com/app/WishList.asp?position=HISTORY&submit=VIEW&ID=139244
Both these systems are slightly over what you wanted but I figured you would be able to sell your old CPU, HDD, Memory, and Motherboard to recover the cost over the $500.00.
That's my suggestion for you, hopefully some others might have some too.
EDIT -> Must have been typing this while you posted Mr. Chambers, Good choices. I guess we think alike.