Have you considered buying used equipment?
Where would you recommend I look? Any other viable options?
I know some are reluctant to do it but eBay and Amazon really are home to a lot of bargains - I got a refurbished GF3 with a 14-42mm lens in excellent condition (the box was pretty beaten up though) for the equivalent of $322 from eBay a few months ago.
There are also the Olympus E-PL1 and E-PL2 cameras that you can get with a lens for within your budget. The E-PL1 would be easier to get with a kit lens and a telephoto zoom lens for within $600 though it's not impossible for the E-PL2.
To make things easier and to help keep them in budget, almost all of the Micro Four Thirds lenses are compatible with the Olympus E-PL and Panasonic GF series so you can mix and match lenses and bodies from the different brands.