As all of my other systems Workstation, Laptop, HTPC are built around the AMD AM3 platform I decided to followed suit with my server. I picked up the components on the cheap over the course of 3 months but I only spent $180. I had access to windows server 2008 r2 for free so that saved a big chunk of money. I built my server around a recycled sempron 140 processor that I received for free for upgrading a friends computer. It draws very low power 45w and i've been very suprised by its power for a low end chip. Eventually, once I upgrade my workstation in a couple years I'll swap it out with my 6-core workstation CPU. That being said If i were to build a server today and wasn't locked in to any particular platform I'd probably go with a build like this.
Intel Celeron G530 Sandy Bridge 2.4GHz LGA 1155 65W Dual-Core Desktop Processor Intel HD Graphics
http://www.newegg.com/Product/Product.aspx?Item=N82E16819116409
ASRock H61ICAFE LGA 1155 Intel H61 HDMI SATA 6Gb/s USB 3.0 ATX Intel Motherboard
http://www.newegg.com/Product/Product.aspx?Item=N82E16813157246
G.SKILL Value Series 8GB (2 x 4GB) 240-Pin DDR3 SDRAM DDR3 1333 (PC3 10600) Desktop Memory
http://www.newegg.com/Product/Product.aspx?Item=N82E16820231422
Antec EarthWatts Green EA-380D Green 380W Continuous power ATX12V v2.3 / EPS12V 80 PLUS BRONZE Certified Active PFC Power Supply
http://www.newegg.com/Product/Product.aspx?Item=N82E16817371033
Seagate Barracuda ST320DM000 320GB 7200 RPM 16MB Cache SATA 6.0Gb/s 3.5" Internal Hard Drive
http://www.newegg.com/Product/Product.aspx?Item=N82E16822148766
COOLER MASTER Elite 430 RC-430-KWN1 Black Steel / Plastic Computer Case
http://www.newegg.com/Product/Product.aspx?Item=N82E16811119227
LG DVD Burner 24X DVD+R 8X DVD+RW 8X DVD+R DL 24X DVD-R 6X DVD-RW 16X DVD-ROM 48X CD-R 32X CD-RW 48X CD-ROM Black SATA Model
http://www.newegg.com/Product/Product.aspx?Item=N82E16827136236
Microsoft Windows Home Server 2011 64-bit OEM System Builder - OEM
http://www.newegg.com/Product/Product.aspx?Item=N82E16832416443
Total I get is $395 after rebates but plan to add more to that total after you figure in shipping, obviously I don't know where you live.
Although the CPU is a Celeron its built on the new Sandy Bridge architecture and will be very low power for the performance you get. There's definately some wiggle room with all the parts as with your 500$ budget you could still add another HDD for storage and leave the HDD I chose as the boot drive.
pjl21 is correct you don't really need a big processor for a server I'm running mine on a single core sempron. Its best to have atleast a dual core if your planning on encoding. If your server needs increase you could always upgrade to a quad down the road once Ivy Bridge is released and the prices for Sandy Bridge decrease...leaving you a spare Sandy Bridge Celeron to build a HTPC around...Good Luck!