Sweet, that makes life a little easier. I assumed you had one of the older Xbox's that didn't come with HDMI.
So with your set-up all you'll need to do is run HDMI from the Xbox to a A/V receiver and then another HDMI cable from the A/V receiver to the TV.
You need to wait and save up. For $500 your best bet is probably a "home theater in a box" type set-up and I don't mean Blose.
Something like this would be a good start. Samsung HT-AS720
HT-AS720 5.1 Channel Blu Ray Receiver / Speaker System
Consumers who already enjoy the full HD 1080p cinematic video quality of Samsung's Blu-ray disc players and HDTVs can now have an audio experience to match. The HT-AS720 5.1 channel hi-definition receiver / speaker system provides powerful, theater-like sound. With its slick, deep black design and soft blue LED accents, the HT-AS720 seamlessly boosts both the audio presence and visual aesthetics of the home theater to a new level. A fully powered subwoofer, accentuated by five satellite speakers, gives the HT-AS720 a rumbling 650 Watts of total output power to keep movie and audio fans satisfied. A complete portfolio of innovative features includes two HDMI-CEC inputs and 1 HDMI output for on-the-fly switching of components as well as 1080p pass through capability for a high-definition viewing experience.
The AS720 can also support the pass through of Dolby True HD and DTS HD and has a built in Dolby Digital Plus decoder allowing consumers to experience their favorite movies with clear, full-bodied sound. The design and performance of the AS720 has also been perfectly matched with Samsung's new Blu-ray players as well as with their award-winning HDTVs. While the performance of these products are impressive, they will impress even when not turned on