It really depends on the person and their priorities. Most of the men on my dad's side of the family ride Harleys. Not just Harleys, but highly customized Harleys (I think this is nearly universal among Harley riders). My experience is that a person buys a Harley Davidson for around $15,000 and then spends several thousand dollars more customizing it. The customizing is as much of the hobby as actually riding the motorcycle.
My wife has a co-worker who started riding about a year ago. She keeps me updated on his progress and he routinely rides 20 miles and he's lost a ton of weight and is in the best shape of his life. He's riding a Wal-Mart bike.
$500 will get a person plenty of bike, even an all-rounder. A Trek 7.2 FX or something similar is sufficient for any riding 90% of the population will do.
On the other hand, custom framesets often run $1500 and up and boutique companies like Rivendell sell $2300 + framesets and their bikes are very much all-purpose, all-rounders.
Also, higher level road and mountain bikes quickly get into the several thousand dollar range and a LOT of people are buying these bikes.
I'm more like the Harley riders. I spent two years planning my build from the frameset up. I bought a beater bike and added new components to it as I bought them and then bought a new frameset, along with the last handful of components, and had it all built up into a brand new bicycle. I ended up with a unique bike. Custom wheelset, fat tires, Deore equipped and a real pleasure to ride and own. I've already got over $1500 invested and I'm already looking at more upgrades, like a different crankset and getting it powdercoated. Heck, I'm even considering buying a Surly Ogre frameset and moving everything over to that. The bike itself is as much a hobby as riding it. I could have bought a complete Surly Cross Check or Long Haul Trucker for less or the same money but that would have only satisfied half of my bicycling "itch".
My bike as it would look with a black frameset:
