500 bucks can get your friend a killer system that will last him for years, with a little careful shopping.
The first place to look is craigslist.org, lots of good stuff real cheap, and you don't need to waste gas or time going to thrift stores.
Go with the classics, used Harmon/Kardon, NAD, JBL, Klipsh (terrific with low powered receivers) and you can't go wrong.
Want to go esoteric and get better sound than a receiver? Get him a used Adcom GTP400 and GFA535 ($300 total cost) off ebay.
Here is the latest system I put together for a friend:
NAD 7155, free, from my closet (she is a good friend)
CD/DVD player, $15, from a yard sale, forgot it's name, it works, that's all that matters.
JBL 2-way speakers, $25, craigslist.org
Total cost $40.
Spend the remaining $460 on music.
Wayne