I am not going to touch the intermittent pausing... there have been a number of WiFi routers sited for that problem (typically cheap ones), and there are soo many environmental factors to look at...
But on the speed part, lets look at the numbers:
802.11b theoretically is 10Mb/sec (notice that is bits, not bytes).
so... 10Mb/sec * 8 bits/byte = 1.25 MB/sec
So your transfer rate of 500KB/sec is approximately 40% of that theoretical max (burst) speed.
Now the thing you need to know is that in networking your throughput_numbers are always significantly smaller than your theoretical max busts speed. For actual data transfer 40% is not bad at all, especially since we are using a protocol that reduces its speed to compensate for distance.
Now... last little bit, are you sure you have a 500KB/sec internet connection? Comcast advertises themselves as being the fastest out there (US market... Asia has better), and they are advertising a 3Mb/sec connection (theoretical max bust... and shared... and "not guaranteed"). This would only be 384KB/sec (max theoretical bust speed), and that is only to the head end.
Personally I have never beat 160KB/sec on my connection, and that was to a local Akami host.