Which PC for £500

If you're including a monitor in that, you're only leaving about £200 for the PC itself. Maybe something based on the Intel boards with the dual-core Atom chips soldered on. They'll take 2GB or more of RAM, have (non-3D) built in graphics and cases/PSUs for them are cheap too.

Do they have computer swap meets over here.. where you pick up grey imports and can then build your own machine on the cheap? Used to do that in Melbourne.