Sure, an A500 PSU would be ideal but they're not always so easy to come by, which is why those PC ones are a handy option to have. I've used a stinking ugly PC PSU with my CD32 for years and don't care too much about what it looks like as long as it's hidden behind the cabinet. :p
At least even without a replacement PSU the A1200 will be useful if the hard drive is replaced with a solid state drive and maybe disconnect the floppy too. My main A1200 is the same as this setup and I use it every day for most of my computing.