My solution is a Sony Picturebook C1. Nothing since has gotten the balance between form factor and usability that good. Not the fastest, but powerful enough to run Skype, and MS Office. Haven't tried DIVX on it yet but I'll do that. It can play DVDs but only if the Sony DVD reader is hooked up to AC power.

Honestly though, if you can be patient, exactly what you want is coming from Asus. It's called the Eee and will be under $500. Supposedly was going to be out mid-september. Apparently not.

http://event.asus.com/eeepc/