There is nothing "full frame" about the E-500's sensor. It is the same sensor as from the E-300, and I do think Jeff reviewed it (but I am too lazy to check). The E-500 has a 2x crop factor size sensor, the D50 has a 1.5x crop factor sensor. The E-500 has cleaner, more artifact free photos in lower ISOs, but it gets more noise at ISO 400 and above compared to the D50.
The D50 seems to me to have a bit more vivid and realistic colours, but this is purely based on the impression I got from online samples. Both are good cameras, if higher ISO matters the D50 wins. What matters more is the lenses you will choose, and since you are looking at cheap DSLRs my guess is you do not want to spend too much on lenses. Then I think the best idea is to go for the Nikon D50. Its 18-55 kit lens is remarkebly good for the money, and you have a big range of lenses to choose from from Nikon, Tamron, Sigma and Tokina. There are some relatively affordable gems in that line-up of lenses.
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Canon EOS 350D, Tamron SP AF 90mm F/2.8 macro, Sigma 18-50mm F2.8 DC EX, Canon EF 70-200mm f/4 L USM, Tokina AT-X124 Pro 12-24mm F4, Soligor 1.7x C/D4 DG Teleconvertor, Manfrotto 724B tripod, Canon Powershot S30
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