When I published my 'touring bike' page in 1997 I'd just bought a new 1996 Cannondale touring bike for $600. I've made many upgrades over the past 16 years, but it's been a very decent bike.
These days similar bikes seem to start at $1000. I can find good value mountain bikes or cross-bikes for my relatively short #1 son, but road bikes of any kinds are an elite product these days. So I'm looking at used bikes, which aren't cheap either. (Not surprising, given the cost of a new bike.)
Finding a used bike is a bit tricky. There are too many stolen bikes on Craigslist for me to be happy there, and searching Craigslist for a small frame bike is a pain anyway . Fortunately a friend of mine is a passionate lover of old bikes, and she was happy to pass on on some advice. It's Minneapolis - St Paul specific of course:
- The Bike Hub Coop has a wide range of used bikes, but many are high priced consignment or high class refurbs, so the average price is $300+. In June they have a "used bike extravaganza" -- a good time to hunt for a small frame bike.
- One on one bicycle studio (Minneapolis warehouse district) - they'll watch for a small frame if asked
- Cycles for Change is near my St Paul home. They had a slightly big bike for the right price, but it had been refurbed with a wide cartridge modern wheel and the chain rubbed on the frame.
I think prices will be around $250-$400. In some shops the bikes are assembled by trainees -- which is part of the mission. They aren't necessarily bike experts though, so you need to inspect mechanicals.
For now #1 is riding my wife's 1984 Nishiki -- a fine and tough old steel bike. She's fond of it but happy to let him try it out, gives me time to test him out and find a used one. (Emily is loathe to part with old gear, so she's not interested in replacing the Nishiki with a $$$ carbon frame thingie.
 An app.net comrade suggested pawn shops, but that seemed a bit hit or miss. I think in these parts bike shops that specialize in used bikes are the best bet.
PS. A post with a picture of my 1976 Raleigh International; I think it was $450 then. In those days that was a high end bike, the equivalent of a $2,000 bike today. (Since that picture I did make one concession - I put Shimano mountain bike clips on it.)