I don't pay much for games these days (or play them much), and I don't think at any point I would have been willing to pay $500 for an in-game item at any point.
That said, I don't have any problem with it. I don't see this as getting less value compared to paying $500 at an expensive restaurant, or any number of things that people with lots of money do. I know someone who paid $3,000 for a Voodoo 5 6000. He collects graphics cards, and apparently it was worth to him, and he had the money. Collectors often pay a lot of money for things that other people don't put much value in. For someone who can spare $500 like I spare $5, buying an in-game item for this sum is fine.