You can bump some of those prices on accessories by shopping sales too. For example REI recently had 25% off all planet bike. I picked up the superflash for $18, rack for $25, and the fenders would have been about $30. I bought my panniers at a REI scratch & dent sale for $35, and my previous pair used for $20. I always figure $100 to do the basic set up for commuting accessories. pump, tool/spare tire bag, rack, minimal lighting.

+1 on the used Mt. bike. Plenty of older lightly used Trek 700 and 800 series bombproof steel Mt/hybrids out there. Not to mention Gary Fishers and Giants. You might find a better deal on the Milwaukee Craigslist though.