I have a little Alvarez that I got for $250 several years ago because of a tiny, tiny flaw in the finish. It was actually considered a factory second because of this. It is a fine-sounding instrument, though it doesn't have the same resonance as a larger-body guitar. Mister has a big ol' dreadnought Washburn, it's a beautiful guitar, but I had trouble learning on it and really wanted something smaller that fit me. (That's another thing to consider - it should "fit" you also.)

Oddly enough, though, our favorite guitar these days is a used student classical guitar we picked up for $60. I forget the brand name but it's made by Gibson. We wanted something cheap we could take on trips with us without putting our Real Guitars at risk for injury. Let me tell you, this thing plays like a dream, and for a Cheap Guitar, it has a really good tone.

Someone mentioned Martins, too, and sure, if you can get a good deal on one, go for it. :) I played a MArtin once in a music shop and they had to pry it away from me.