Checkout the Limit DVD 800SE thread on this website.I bought a 800SE(£150 from Limit direct).I think the picture is good enough for my old Sony TV but the audio on DVD and CD is very good.
Well worth a listen.
Limit also make a DVD A900SE which has progressive scan and other video goodies for £200.
Check them out. http://www.limitelectronics.co.uk/index.asp
If it were me and I was happy with my dvd players performance I'd use the full £500 budget on a designated CD player. That'd give you the best cd music playback imo. I'm assuming that your trying to reduce the no. of boxes and space they take but I'd personally not want to make that compromise
Dvd players just can't compete with cdp's of a similar budget imo.