my suggestion
go to yahoo shopping
digital cameras
digital camera GUIDE
be sure to check titles on the left side
the guide should answer your questions

i recommend CANON A650
you know i'm a beginner photographer and i have this model and its really wonderful cam with its great options: 12.1MP which causes wonderful photo quality, 6x optical zoom, etc.
and i like its body shape very much too

I've been thinking about doing the same thing, and it looks like the Olympus SP-550UZ is our best bet.
1. It has 18X optical zoom, which is as high as cameras get right now without actually putting one on a telescope. You can also buy a telephoto adapter to increase that by 1.7X.
2. It has a bulb mode that will take pictures up to 8 minutes long! My little camera I have now goes up to 15 seconds, which is the minimum just to see the stars visible with the naked eye. I would love to see what I would get from an 8 minute exposure.
3. It has a time lapse mode, so you could just start it running and let it capture some pictures automatically (only up to 99 shots though).
4. If you settle for lower resolution, it will go up to ISO 5000. I don't know how noisy the picture would be, but it's worth a try.

The link has a very long, good review on this camera including sample images.

Spend the $500.00 on the best telescope you can find, (reflector), then use any SLR set on infinity and hand held up to the eye piece. Otherwise you would require lots more money with a clock drive to mount camera directly on scope.

You might be able to get "star trails" but without an equatorial mount that's about all you can expect to get.

Without a telescope its unlikely you'll be able to see nebulae and if you do they will be faint and blurred if you don't have the aforementioned mount. The earth rotates in relation to them and since your exposures will be very long you'll lose them.

Another thing to consider is over-heating of your sensor due to the long exposures.

IMO you need a DSLR mounted to a good telescope with an equatorial drive.

Without a telescope and an equatorial mount, I don't see how you could do this for $500.

My suggestion: get a reflector telescope with a motorized equatorial mount. You can find them used on places like craigslist, usually for hundreds less than brand new.

Next, you'll need to adjust the mirrors (collimate).

Finally, you need to orient the telescope so the mount can track properly.

At that point, virtually any digital camera that can be set to "B" or "Bulb" will be capable of working with your telescope. A digital SLR like a Canon XT would be a good start; you might need an adapter to mount it on the telescope.

If you're lucky, you might find a basic motorized telescope used for $150 and then spend another $500 on a basic digital SLR.