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I would keep it as the native resolution too (256x224) running in PAL mode and I don't see any reason this couldn't be done on an A500.
Some quick calculations based on what I've seen of the game.
120kb for 3 screen buffers
100kb for audio (music/sfx)
40kb for tile sets
10kb for tile map
100kb for code.
100kb for sprites
470kb ish...
with 512kb slow ram you could probably afford to make the scrolling less complex which would likely be your biggest hurdle.
Get the scrolling right, then build a sprite engine and you'd be just about there. I can't see how going AGA will help you that much.
Let me know i fyou want to bounce ideas off me though and good luck with your project for sure!
Graeme
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