I'm a college student looking to upgrade my bike. I've been saving for a Trek 7.2 FX WSD. (Mostly because it looks just like the purple Trek I had when I was a kid...

) I checked with my my local bike shop and it'll be a bit over $580 with taxes. I'm a bit hesitant to spend almost $600 on a bike so I've been checking Craigslist.
Someone is currently selling a women's 2011 Trek 820 (16") that is practically brand new. "Rode up and down the road twice. Never seen dirt." They are asking $225 for it. Is this a reasonable price? They state that it is negotiable. What would be a good price to pay?
I realize it is technically a mountain bike, but I'll be using whichever bike I ultimately by for trails and riding to class.
I'm not really sure if this is the type of bike I need. So I come to you, BikeForums.

If you have any other suggestions on bikes at a reasonable price, I'd love to hear them. Thanks for any help!