How come no one has suggested an Athlon XP system. For the price range that he is looking at, that would be very appropriate. Since I don't see any mention of you doing video encoding, the Athlon XP should provide more bang for your buck in most applications. As well, you have your 2.8GHz system to do encoding if you must. Here is my suggested Newegg build:
Case & PSU: Antec SLK3700AMB 350W ($65)
Motherboard: KX18D Pro ($61)
CPU: AMD Barton 2500+ Retail ($90)
Memory: Corsair VS PC3200 512MB ($79)
Video: Transcend Radeon 7000 ($35)
Sound: Onboard
LAN: Onboard
HDD: Samsung SP1604N 160GB ($106)
CDRW: Samsung 52x32x52 ($35)
Floppy: Samsung ($6)
Total Shipped: $496.25
You could knock down the price some more by going with a cheaper case and PSU. However, I do not suggest such a thing. This is a very quiet, well ventilated, reliably powered case/PSU combo. The case and power supply help determine whether or not a system is going to be stable. If you must get something cheaper, then I suggest an Enlight case and PSU. They inlcude Enlight or Sparkle PSUs. Those are some of the best power supplies available in that price range. As well, Enlight cases are of decent quality.