I also just got the PE-500 last month because it's cheap, I only paid $219 for mine from Amazon
My primary intent was to be able to embroider quilt labels and maybe small stuff for my kids. 4x4 is more than fine for that. I do have the larger 4 x 6 3/4" hoop so I can stitch out a larger "area" without re-hooping if I split the design, which is mostly useful for stitching out names. If I really wanted to stitch out something larger my mom has a TOL machine with a huge embroidery field that I could use if I ever feel like doing anything bigger (which is really not too likely).
I already had a registered copy of Embird or that would have been another expense to add to the cost of the machine.. I need digitizing software for the things I want to do, but it seems that my impression is that most people really don't learn to use it when they have it... there's a learning curve involved with digitizing and some people give up on trying before they get very far with it, even if they do take classes.
Really what you need depends on what you want to do... you could feel horribly limited by a 4x4 field or like me you might find it's perfect for what you want to do. Then again you could get a 5x7 machine and immediately want even more space than that. You could even get a machine and decide that it's not for you at all.