Extremely budget minded system for under $500.00 ?

I assume you are talking used, since that opens up the possibilities. I still have and enjoy a Fisher all-in-one 100wpc, 24 CD, dual tape unit. It is always reliable and sounds very tube like with it's monolythic output chip (probably 2nd order harmonics). So sometimes a musical sound is hiding where you would least expect it. It also saves on interconnects. At this price point I would definitely give the lion's share of the budget to the speakers since they establish the foundation and will reveal system upgrades as the audiophile adventure continues. Also good speakers will allow flat sound reproduction so the new listener won't be addicted to tone controls. It takes a lot of searching and listening a this price point to find audiophile potential. I've had great sucess with Infinity speakers from the 1980's, but the cosmetics will be a little rough at low prices. Of course if full range isn't nessessary, good 2 ways start around $100, so it depends on what type of listening and music is in play. It's a noble cause, best of luck in it, JAY

I would look at the Energy XL-150's or the newer C-10 speakers. Used should be around $120. (Paradigm Titans would be a second choice) Use Audioquest F-14 speaker cable. I have some used for .50 cents a foot. Solid core cable.
Find a used Onkyo TX-8211 receiver. Maybe $200. and find an older Magnivox CD player that has the #4 transport in it. Every year for an 8 year run you could get 1 Magnivox that had that transport. (or Phillips) Try to find one that has been modified and/or call repair places where one was fixed and the customer didn't pick it up.
Also an older Arcam or Rotel player is good.

Even though people think that the Digital part of our industry moves fast, in reality, a lot of the older and nicer CD players blow away the new entry level players.

Get a used pair of Audioquest Topaz interconnects to finish it up.

Well, you might be better off shopping on eBay, but here's what I found.
1. Philips DVD763sa $110.00 OBO (1136508766)
2. Yamaha CR-640 Receiver $195.00 OBO (1138217065)
3. AAD E-44 (speakers) $150.00 (1137968230)
Total= $455.00
All are open to reasonable offers.
Good luck and happy hunting.

I can highly recommend the Denon Mini System DM31.

Amplification: I'd start with something like the Pioneer VSX515-K receiver. It's 110w/ch in stereo, and could serve in a starter HT set-up as he upgrades. Street price $170.

Source: Pick it. Any name-brand DVD player. The differences are trivial. Street price: $50-60.

Speakers: Here, your friend has to listen. PSB Alphas, Paradigm Atoms or Titans, Infinity Primus 150 or 160. Do not make this decision for him. List price: $200-260.

The DVD player comes with an I/C. Use it. Hardware store speaker wire runs 20-30 cents per foot, depending on gauge. Do not spend money on wire in a sub-$500 system. Spend every penny you can on the best speakers you can find.