I built something similar to this for a friend. I came in at $550, but I have 4 gigs of ram, and a better power supply. I didnt OC at all. I could have reused the old HD and knocked $60 off of it but I wanted to dump all the ATA stuff in the case except the floppy. I also reused the old case, which is how I got a better powersupply. Also used a 9600 GT for a little nicer card. She had a copy of Xp to throw on it.
Quad vs Dual core in a budget machine is really shown here. The quad core just simply isnt worth the money right now. Not enough apps really take advantage of it.
Overall its a smoking little machine. The processor with nothing but a heatsink change will hit 3 ghz + as shown in this article. She games, but is on a 19" LCD, which has a native resolution of 1200X something I think so the 9600 GT is plenty of video card for her.
Overall this is a great article and $500 can easily be adapted to whatever you need give or take $50 depending on what components you salvage off the old PC.