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Don't bother with the engine...

The engine isn't the greatest, but it is actually fast enough for the street: just run it at high RPM if you want the Go juice to flow...

If you want to improve it, focus on brakes and suspension.

The front suspension in particular might as well be two pogo-sticks: take it to a real suspension house (eg, aftershocks or evolution suspension in the bay area) and get the forks redone with new springs and ideally cartridge emulators.

Go with a steel brake line (Its cheap on the 500, single disk and all), and consider replacing the pads.

Together this will be the best improvement, and bang/$, you can do to a Ninja 500. Then see about a new rear shock or an adaptor to use a cast-off 600ss rear shock.
 
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