I've built dedicated systems for audio editting & recording myself.
I can't recommend many specific components as I haven't built one for a little while & so I'm not up-to-date on whats available.
I will make a few suggestions though based on my own experience.
As you know, the sound card is going to be the most important component that you will need to research, and possibly the most expensive depending on what you need it to do. Look for a card that uses ASIO2 drivers and has a very low latency.
A friend of mine who I built one of these systems for, uses a M-audio Delta66 card which comes with a breakout box with good results.(approx £100 currently)
Apart from that, you also want fast hard drive access, so look for a drive thats 7200rpm minimum. SCSI will push you beyond your £500 limit but serial ata or even ATA-133 will suffice.
You don't need the worlds fastest cpu, so stay away from the top-of-the-range new releases. Any Athlon above 1GHz or any Pentium 4 should be fine. Make sure you have plenty of ram though.
The choice of OS is an interesting one as well. People have had very mixed results using XP for this type of application - some say it works really well, other people have found it to be a nightmare.
In my experience, Windows 98se has always worked fine for this, but you may find that some of the more recent hardware (particularly motherboards) a bit flakey with 98. If so, then windows 2000 (SP4) is probably your best bet as its very well supported & very stable.