You can tell the difference between the 400D and the 500D. The clarity is phenomenal.
The 500D uses the same new Digic 4 processor which higher end models use.
The lens that comes with it has built in image stabilisation that can be turned on or off using a switch on the lens.
The speed of shooting is faster than the 400D and it just feels better in you're hand
Reviews I have read indicate you can shoot around 90 shots continuously before the memory buffer fills up.
I'm going to get my 400D fixed but I'm very glad I upgraded.
If you do upgrade you will need a class 6 or higher SDHC memory card. The camera also takes HD video (720 at 30 frames/sec and 1080 at 20 frames/sec).