With your budget and relative inexperience with bikes, I'm going to suggest going the REI route.
WHen I wanted to buy my first bike in 15+ years, many well-meaning cycling friends told me to look at Craigslist, especially because I live in a pretty bike-saturated area. So, I did. I'm sure I saw some bikes that would have been great for me...the problem was, I had no idea what I was looking at. And even though I could send the ads to my friends to get some explanation, when it came time to actually check out the bikes in person and try them out, I was lost.
In the end, I stretched my budget enough to get me into an entry-level new road bike from an LBS. That was the last bike I bought entirely "new," but if I had it to do over again, I would go the same route. I was able to buy a bike with some confidence that there was a shop that would be there for me if something went wrong, or to just explain things to me when I didn't understand them.
There are those that would say that REI is only a scant step above a big box-store when it comes to bikes. And sure, it doesn't have the charm of an LBS, but the bikes are of decent quality and what you get for your money is generally a pretty good value. Top that off with in-store mechanics and a great return policy, and it's hard to see how one could go wrong letting that be their first stop back into the world of bikes.
Don't get me wrong, I have nothing against used bikes. I love them, in fact. I spend way too much time perusing (and buying from) Craigslist. Used bikes are great...if you 1) know what you're shopping for/looking at, 2) already have an idea of what you need with regards to sizing, and 3) have a little mechanical ability. It's pretty easy to pick up a bike from Craigslist and end up spending an extra $100+ on it at a bike shop fixing little things and tweaking other things to get it set up just right for you. If you can't do that kind of work for yourself (or have a friend willing to help you do it), a "great deal" from Craigslist can easily turn into not such a great deal.
Good luck!
2009 BMC Road Racer SL 01 / Specialized Ruby 155
2007 LeMond Reno / Luna Chix Team Saddle
1980-something Lotus Odyssey / Brooks Finesse
1992 Bridgestone RB-2 / Brooks B-17 Imperial
Nada Bike singlespeed / Brooks Team Pro in white