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Travelers will be able to take a train from Shanghai to Tibet starting in July. The Shanghai Daily story says the train would be pressurized like an airplane cabin because of the high elevations covered during the trip, which would last 53 hours and cost upwards of RMB 1,000. Sections of the Qinghai-to-Lhasa leg of the journey are more than 4,000 meters above sea level. The story says a seven-day tour of Tibet currently runs around RMB 7,000, RMB 3,000 of which goes toward plane fare. Now, using the train, the same tour would be RMB 3,000 in total -- of course you'd have to spend more than four complete days on a train. And, if you are a foreigner, you have to add US$500 to anything, because you need to purchase a special permit to visit Tibet.
Also mentioned in the write-up is a luxury Beijing-to-Tibet train set to launch in 2007. For US$1,000 a night, you get dinner served to your cabin, massage service and a butler.
Photos from friendsoftibet.org.
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Perhaps your $500 for a permit quote was tongue in cheek, but it's possible to fly from Chengdu to Lhasa for a total of less than 2000 RMB (including permit). It'll be many more years of the yuan appreciating against the dollar at present speed before that's $500 for the permit.
After reading the article, I see that the Shanghai TTB obviously has a monopoly like the one here has.