That's a much more reasonable price for your needs, IMO. I'd consider a nicer screen, though, as I think the screen is the most important part of a PC.
SlickDeals lists a similar $850 setup with a 20" widescreen LCD with DVI and component inputs but with minimal hard and optical drives. Honestly, you could probably buy a DVD+/-RW drive and a 160+GB HD cheaper online or locally (and the HD will have a longer warranty, especially a Seagate), but you may as well include it in the system build if you don't want to muck around inside your PC (simple as it is, tho, and that may save you some time and money down the road if something else breaks, or if you want to add something later).
I don't know how good the E173 is as a monitor. LCDs can certainly be better than CRTs for text and such, but make sure the one you're getting has good viewing angles. You don't want text and colors to wash out if you shift your position slightly. Look for a review of the E173, or consider putting some money toward a Dell 1905, 2001, or 2005, all of which have been pretty well reviewed. They may end up being cheaper if you buy them separately, though, during one of Dell's crazy sales.
Yeah, you don't need to buy the exact same memory stick with the exact same memory chips on it, just another 533MHz DDR2 stick (or, rather, a pair of them). If the motherboard has four RAM slots, you can buy a pair of 256MB sticks; otherwise, you'd buy a pair of 512MB sticks and sell or give away the pair of 256MB sticks that came with it. If you're worried about the exact memory timings, search them out on Dell's site, or maybe use Crucial.com's or Kingston.com's online configurators to see what you should be looking for. Then you can go about finding the best deal online.
I think the Pentium 6-series has 64-bit (EMT64) and the no-execute bit (I forgot Intel's acronym), but you can check Intel's website or an Anandtech or TechReport (.com) review to be sure.
Edit: If I were you, I'd pay the extra $20 (IIRC) to go from the dual DVD + CD drives to a single DVD+/-RW drive.
And two deals on a better LCD:
$464 2005FPW and
$200 1704FP. If you want to go crazy with the monitor (and maybe use it as a TV, tho I don't know how wide its viewing angle is),
the 24" 2405FPW is $900.
