A DSM could be done, but you can't treat it like a drag or street car. Road racing is a whole different world as far as tuning and reliability go. The $500 limit is a bit of a problem when it coems to making a reliable turbo car and then there is fuel usage, you have to run a turbo car a lot richer than an NA car making the same power and then you have to run a turbo road race car even richer than a street car, so pitstops and just the cost of fuel becomes a problem. Race gas would help immensely, but 100-250 gallons of gas used racing in a weekend adds up.
I find it a little funny that a transmission shop is what it takes to Chumpcar race a DSM.
It's a shit load of fun though, you should be able to get away with some things, since I have no idea how half of the cars out there could be considered to have an average internet value (AIV) of $500 or less. Some of them would obviously go for $1500-$5000 in the real world, but it's hard to be mad at anyone since just about everyone is nice out there and nobody is blowing anyones doors off(except maybe if the Contour from the last race didn't keep crashing and blowing shit up, it was quite fast when a decent driver was in it). The SC400 was fast in the straights too.
You will need some $$$ and lots of time though to get a car running. Even though it's a "$500" car, you will probably have to spend a lot in getting things back to good shape, adding safety equipment, gear, entry fees, etc. The other guys on our team spend a shit load of time working on the car and getting things setup, we might also be one of the most organized teams when it comes to having tools, spare part bins, etc at the track. I just pretty much get in the car and drive and try to stay on the track.