Looks like I will have to commute a far piece to have a job. 18mpg diesels and 20mpg gassers ain't gonna cut it traveling 180 miles round trip.
Basics:
30mpg consistently per tank. If it is 28mpg, I am not going to complain too loudly. Going from 18 to 30mpg nets $400/mo in savings at $3.50/gal. 2dr/4dr/wagon/truck doesn't really matter. CHEAP. Like challenge money cheap.
And go! 
... or diesel caddy
E36, either a 325 or 328 should be in your budget...
Heh... nice. I knew I forget to say something about it being fairly recent too. I like the oldies as much as the next guy, but breaking down in the middle of no cell service BFE areas of WV isn't an option.
In reply to dj06482:
Not around here within a reasonable driving distance. 
OM617 powered mercedes? not new, or terribly fast, but ~27 mpg and there really isnt much to go wrong that isnt going to either be easily repaired or obvious before it happens. Or TDI mk4 jetta? A little more than double your budget, but a little less than double the fuel economy you want too.
Mazda Protege, Toyota Corolla, Toyota Echo,
Fairly recent and challenge money don't really go together. Not completely sure if you only want a wagon or truck but..............Corolla (Prizm), Civic, Hyundai/Kia, Mazda 3, Sentra come to mind. Maybe a first gen Scion Xb or Honda Element if you need more room. Some of those come in hatches and wagon type things and depending on what year and style should fit the budget.
In reply to Feedyurhed:
Fairly recent means not early 80's like the VW above. I have mid 90's vehicles around now, so I would say comparable years. I can pick up 2k V6 Mustangs for under 3k.
I hate to be boring here, but the clear answer here is "mid-90s civic or accord."
Geo Metro is the best mpg you can get without hybrid/diesel
I paid 6k for my mk4 jetta TDI 4yrs ago but it has given me 40000+ miles of 43mpg so far Worst tank of gas in the car ever was all city driving and AC on was 37mpg
Mine is a 2000 with rollup windows so little to break. It's been an amazing commuter car as it has a real sized trunk and a decent backseat to boot.
Timing belts if done anytime recently should be a every 100,000 mile deal. Maintenance wise it requires oil changes only every 10,000. I did the brakes on mine and I replaced OEM suspension with new bushings and koni reds, and I had the A/C recharged that is the only stuff I have had to do to the car except oil changes since I bought it in August of 08? It had 124,000 on it then and just rolled over 170,000 yesterday
http://www.fuelly.com/driver/jaynen/jetta
Also the TDI's retain value quite well I could pretty much resell my car for close to the 6k I paid for it.
Highway cruising is typically german and very smooth. While underpowered the torque makes it bearable. Three of my wife's family members purchased them after I bought mine and everyone has been happy so far.
In reply to irish44j and Jaynen:
Then comes the trick of finding one. But then again with the routes I have to take with overloaded coal truck traffic on narrow winding 2 lanes, I don't think I want to play chicken with one of them in a Civic or Accord.
The TDI's are just too much money.
This sounds like a job for a Focus. A Duratec 2.0 model should hit your mileage target without too much trouble.
2000 and up Hyundai accent with a manual. The early 00-01 1.5 sohc wil run forever and return mid to high 30s at highway speeds. Slow it to under 70mph and it'll get you 40+ for as long as you want it to. It's small, parks easy and maintenance is easy and cheap. You really can't beat it for the money. Nice thing is you get older Toyota/Honda reliability without the Toyota/Honda tax.
You should be able to find decent E36s in your price range. Remember to extend your search beyond what you're willing to pay, as many will drop into your range over time. It goes without saying, but if you're in the Challenge money range, don't be afraid to lowball. You only need to find one...
Golf or Jetta TDi
You already have a diesel so you know all the good things.
"Economy cars" typically have a high "tax' on them since everyone is looking for one.
What you need is something that is overlooked and plentiful.
Imagine a big car, so big it can seat up to 6 people.
Imagine an engine powerful enough that it drives like a small V8.
Imagine a car that is stout and strong and considered "one of the most reliable they made."
Imagine and epa hyw rating of 30 mpg when they were new and rerated at 27 mpg hyw (still darn good.)
Imagine being so plentiful that you can find this many examples without hardly trying... .
'02 w/ 82k for $2,500
http://charlestonwv.craigslist.org/cto/3320152080.html#.UHD7P65s-_I
'03 w/100k for $3,200
http://charlestonwv.craigslist.org/cto/3290886446.html#.UHD-pK5s-_I
'96 w/ 96k for $2,200
http://lexington.craigslist.org/cto/3316944433.html#.UHEAXq5s-_I
'98 w/ 123k for $1,800
http://lexington.craigslist.org/cto/3313434890.html#.UHEA0q5s-_I
'96 w/ 105k for $1,250
http://lexington.craigslist.org/cto/3235974891.html#.UHEBka5s-_I
All GM 3800's.
I got to say this sounds like a job for the ultimate appliance...The early 2000s 4 cylinder accords. Around here they are as cheap as any of the options that were mentioned. $5K is an expensive one.
If you've got all highway driving, I would recommend a 4th gen Maxima. I've gotten 32 mpg loaded down with camping gear cruising at 65-70 on the highway. But if it's all stop and go traffic I think a Corolla/Prism is the best bet. A Civic would be good too, but then you have the ricer tax to worry about. The Prism especially can be had for cheap since they don't have the performance potential that the boy racers want. Plus I've heard they're bulletproof.
In reply to sethmeister4:
It really isn't highway, but it isn't city. It is curvy, up and down the mountain barely 55mph speed limit 2 lane for a good part then turn off and travel divided highway.
Oh, I would really like to drive a manual again too.
In that case I say Corolla/Prism with a 5 speed.
Saturn SL, SC, SW are good choices too.
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