To give you an idea on what I would buy my kid (at any age, really) if I had one:
CPU - Phenom II X2 unlockable to X4 - £60
Mobo - the cheapest full ATX on the latest chipset that has decent overclocking capabilities - £60
RAM - 2x2GB of the cheapest that was usable - £30
Graphics card - Radeon 5850 - £115
Case - something around £25-35 mark depending on flexibility.
OS - no, not Ubuntu. Win 7 with a student's discount - £50.
PSU - probably one of the budget newer models (for efficiency) of Antec/Coolermaster/Corsair/whatever rated at around 400-500W - £40
HDD - 500GB/1TB - £25-40
Optical drive - DVD-RW for £15 or less - honestly, how much do we use them nowadays?
Monitor - would depend on what's on offer but I like the idea of investing money in a decent monitor and suiting the rig to it - £150 or so
£450 for the system plus £150 for the monitor. Half of your budget.
I used estimates but you get the idea. I would shop around a lot though.
Let me add that the above rig would be perfectly capable of playing any modern games at high settings.