My friend is also looking into building a new computer for Christmas. His budget is only $500, but I thought I'd give a shot at trying to help him out. This is the build I put together for him. Opinions would be great. He'd like to play a few of the somewhat newer titles with whatever detail settings he can (primarily Battlefield 2142).
-Maybe you could find one a little cheap if you didn't have that included PSU(as you have listed a separate one).
-With the board being a M-ATX, you are going to want to make sure that the case can hold one. I mean most cases do, but...yeah. Also, it is known that M-ATX boards produce more heat if that is a problem.
-I know the budget is extremely tight, but have you considered a ATI 3850? It will, sadly, run you about $50.00 more expensive.
-CPU Looks pretty good for this kind of budget build.
-If your budget is really, really tight..consider dropping the frequencies to 667 or something.
-Yeah, he probably wants this. Maybe he could just use linux until he gets more money.