Its easy to build a very competent gaming rig for less than $500. Tom's Hardware has a regular feature about how to do it. Heck the $500 gaming PC I built more than five years ago still plays modern games with high graphics with only one graphics card upgrade in that time. And I still haven't even bothered to OC the CPU.
I'm rebuilding one now that would have come in under $500 but I wanted a high efficiency totally silent PSU and so I splurged on that component, otherwise I was easily under $500.