Out of the options you gave for voting, I chose to go the A1200 route, but only because your A500 is good enough as it is for most games. Personally, I'd just be happy with your A500 and skip the 1200 unless you really have $300-$500 burning a hole in your pocket. As Trev hinted, you will not be happy with a stock A1200. Fast Ram is only the beginning.
Internal or external HD solutions are out there for your A500 and cost less than $100. Guess it depends what you want to do with an Amiga these days. If its only to play games, minimally upgrade the A500 (more ram ain't gonna really do squat). If you want to get into Demo's, play around with AGA, the potential to do mass storage (A1200 has built in IDE) and some more "serious" stuff with an Amiga - then go for an A1200 - but be prepared to sink a lot of dough into her. She's an upgrade whore that way and you may never be fully satisfied ;-)
