We put DS1 in a toddler bed from the cot, he was a few months shy of 2. He went in a single bed when we moved house, and the toddler bed we passed on to DS2, who went in it at 18 months.
Ours didn't cost that much - we got a nice little wooden one from Toys'r'Us for $120, and I've seen the same sort of thing at Target. I think my sister paid $80 for the one she got for her DS.
A few things about it have been really great - one thing was that you just use their cot mattress, so they get to keep the mattress they're used to and you don't have to buy a new one. Also, it is not big and scary for a little kid. It's not too high off the ground. DS2 is 2 and a half now, and he's still in the toddler bed. He's big for his age and probably could go in a single bed now, size-wise, but we're hesitant because he has a sleep disorder that causes him to move a lot, all night; he does fall out of the toddler bed on occasion, but the rails stop him most of the time and even if he does fall, he's close enough to the ground not to get hurt.
So yes I do recommend a toddler bed! They can stay in it for a fair while, so you're not having to replace it too quickly. He could get 2 years' use out of it.