Whenever someone asks me what to buy on a budget, my advice is the same as most people in this thread. I advise them to look for a nice used bike, or utilize the plethora of bike fitting advice available online and buy something from Bikes Direct or eBay. If you know what size you need, it's actually easy to buy on eBay. Most sellers list the measurements in their auctions. Shipping does add to the cost, unfortunately.

I steer people away from Wal-Mart, but I've actually seen pretty decent Schwinns at Target. Last time I was there I saw a black flat bar road bike with 700c wheels. Now, I don't know what the durability is like on the big box store bikes, but they're still light years better than Murrays and Huffys used to be.

Bikes Direct does run really good deals. Bike Island has the Dawes Lightning available right now for $199.