I'd look at the celeron wolfdales or sempron LE, something that uses low power, or, possible, an atom + ion. Its all up to you, but the machine you build for $500 could add $30 a month to your electric bill, which is a cost that's good to consider.
I recently bought an Cooler Master Elite 360 Slim, which was marketed as a budget HTPC case. Got it for $25 at Fry's a while back. Its bigger than almost all htpc cases I've seen. Its only marketed that way I think because its designed to be horizontal. ITs nice, though. 2 cd drive slots, 2 3.5" slots (one external), and it takes full size PSUs and ATX motherboards.