If you go with film, the canon rebels are really nice, and could probably be bought with that price range.
I had a digital canon that took beautiful pictures, and thye looked great on film too. IT was a powershot s200. You could get a 4mp canon powershot with that amount of money. Mine was a 2mp and my pictures looked just as good, if not better then my brothers 5MP Sony, unless we blew them up really big. 4 MP will print up to 8x10 though and look great.
If you decide to go digital, look for a camera with the optical zoom and not just digital. Digital zoom will make your pictures look more grainy..
Here is what I would get with $500 if I was going to buy a new camera.
http://www.amazon.com/exec/obidos/tg...hoto&n=3017951
Then I would go for a nice big memory card, and an extra battery with the money leftover.
