Now before anybody goes to hell for lying, let's clarify a few things...
Avatar's final cost clocked in at somewhere between $195-205 million; about the norm for studio "tentpoles" like Transformers 2, Quantum of Solace, Terminator: Salvation, etc.
It's price tag is actually $50 million less than Spider-man 3's and more than $100 million less than the third Pirates of the Caribbean disaster.
Aside from irresponsible journalists and gullible bloggers, the "Avatar cost $500 million" myth comes from the cost of the technology used in the film, so Wolf359 is half-right. However, the money spent developing the HD/3D cameras and advanced performance capture gear isn't tied to the film in any way. The third-party investors who paid for the technology won't see a dime from Avatar's box-office; instead their profits will come from licensing out the equipment they paid to develop. Prince of Persia, Ironman 2, and The Hobbit films are all already using it.
Personally I'm grateful to see an original piece of Science Fiction, made by a visionary director, with tremendous studio support coming down the line. It's refreshing to see an event movie that's not a sequel, not a remake, not based on a TV show, not based on a 1980's toy line, etc. But that's just me :)