Mason from Two Plus Two Publishing pays $200 for a 1000 word article that gets published in their monthly online magazine. The article is taken down from the site after 3 months and the rights are then returned to the author. (!)
The guy who charges $125 for 500 words seems reasonable provided he writes high quality original content.
Paying for articles to use for affiliate sites is kinda like a CPA model. You pay the writer a one time fee and one of you is going to make a jackpot. Either you suck at SEO and make no money from the article or the article results in you getting a whale and then the writer loses.
Really good writers should consider starting a site themselves.
The lady who sold content for $35/1k words was either selling garbage or just really really dumb.
Consider http://www.playwinningpoker.com – Rumors are that Mr. Badger rakes in $1 million per month in commission. Why would he sell pages to you guys for $100 a piece?