Nathan,
I would suggest taking your friend to shop that carries PSB speakers. For around ~$500 you're pretty much limited to mid-fi, but despite their "mass market" pricing you'll be hard pressed to find a more musically satisfying line than PSB. Their Image series may hit the spot, price-wise. Compared to the "Monitor" series from Paradigm, just to name an example, to my ears the Image line sounds more harmonically rich, smoother, and less strident in the treble. The 4T and 5T are probably the best values, though at $649 & $799 MSRP for each respectively they are a bit over your stated target.
Of course, you can also find great used deals on audiogon or shop online, but since your friend is a novice it's probably best for him to hear/see it "in the flesh" before buying.
Good luck!