hi Diana, welcome to the board and congrats on your move back to madrid

Nanny is right, aside from the many offers on this forum that come and go, the "housing" section at
http://madrid.loquo.com is a great resource.
see
http://madrid.loquo.com/english/cat/312 for apt. rental listings.
as for your budget of up to 500 euros, if you want your own flat, that will have to come up a bit (especially in the city center).
the advantage is that now is a great time to look since many flats empty out this time of year (summer coming).
i also agree with Nanny as to the coming here and then looking, it is VERY hard to find a place from abroad and i would not take anyting sight unseen

good luck.
stay in touch here and let us know how it goes.
saludos,
jer...