I bought an old beemer when I crashed my last motor and I love it. Doesn't go wrong and is cheap to fix. The insurance is suprisingly cheap and the handling is suprising soft.
Cost me £500, had 51,000 on the clock and doesn't go wrong. NOt bad for 20 years old.
I think that old beemers and mercs are really good buys (but check the insurance first). Might actually be selling it soon, so if you haven't found one by then, let me know.
Stay away from Ford KA's over 5 years old, it'll turn to dust soon enough.
Here's my beast:

When I had about a grand to spend, I had a Mazda 323F. That was fairly nice until it threw me into a crash barrier. Japanese cars are my favorites, but parts can be expensive if it all goes wrong (new pully kit for the major service cost me £140). The wife has a Nissan 100NX, funky looking T-Bar which was about £600. Good for the money.