£500 - that's a pretty healthy budget. It all depends on what kind of quality you are going for.

I've got fairly lo-fi ears, and I'm pretty satisfied with the results from a Sharp ghetto blaster with built-in mikes that I bought at a garage sale, together with a free Goldwave CD program I downloaded to turn the tapes into wav files and clean them up a bit, together with a CD burner internal to teh PC, that cost about £30 from PC-world, for CDs that can play on any CD player.

That doesn't allow for overdubbing and that, but if you just want to record one singer with a single instrument you don't need much mre than that.