understanding the reality of a budget - but if a bike (or anything) isn't a pleasure to use, it won't be.
try as many bikes as possible before letting the $$$ be your deciding point.
LBSs don't usually push used bikes since their sponsors (read: bike distributors) want to see numbers to evaluate their credit program.
I would dig in to used bikes via CR (ugh!), newspaper ads, or the retired guy one town over that buys old bikes, tunes them, and flips them as his hobby.