I've been doing just fine with a Celeron 366 (or is it a 333?) overclocked to 375, and basically any PIII will do better than that. You can get a PIII 450 for under $100 now, but the sweet spot price-wise is in the range of a PIII 800 for around $175 (hit pricewatch.com). I'd check anandtech.com for some reviews to make a decision on the motherboard, but you might as well get one with UDMA/100 capability, since a faster hard drive is always a welcome upgrade to a DAW. I like the Abit boards I have in my systems at home (BE6 and BP6), and you'll pay about $120-140 for those. Get at least 128MB of RAM, just look around for some mid-priced PC133. I've never had trouble with generic memory but don't go bottom-of-the-barrel. You can get a generic 40x cd drive for $40 I guess (I haven't bought one in a while). If you want a CD burner, the Mitsumi IDE drive I have was cheap and has been reliable. (By the way, check out computer123.com for cheap CDRs - $9 for 50, and haven't hit a bad one yet after two spindles.) If you're doing nothing but audio work on this system you can pick up a cheap AGP video card for $50.
All of that should just about take care of that $500. (I've left out basic stuff like case/power supp, keyboard, blah blah.)