For used bikes, you could pick up a lot of used hybrids for well within that budget, and have money left for a bike shop tune-up. Trek, Schwinn, Cannondale, Specialized and Giant made millions of them over the last 20 years. Check your local craigslist. Most will have an aluminum frame and fork (or steel fork) with 700c wheels that will roll better than your current bike.
There are a few options for new bikes if you go that route. Nashbar makes a few commuter bikes that are inexpensive and have received some decent reviews. You'll need to know your size if you order online. If you can spend a bit more, and find one, the Torker Graduate is a fantastic commuter bike for $500.
I would also say the LBS is good option, but if you live in the northern half of the US, where the bike season is ending soon, you need to be careful that they don't try to sell you whatever they have left over, rather than the best bike for you. Stay away from cheap hybrid bikes with suspension forks, for one thing. They are heavy and not necessary on the street.
If you can tell us what brands you local shop sells, we might be able to recommend specific models.