Set the goal!

Your questions:

A month later I am running over 2 miles, can bike 10 miles and swim 200 yards (my weakest area-never swam competitively). In other words, I want to do one this fall but may have to wait until the spring. I can only train for about an hour most mornings so don't think I can be ready for the fall.

If you can train an hour most mornings, that's 6 hours a week (w/ one day off for rest) - you could do a sprint triathlon this fall, if you wanted to.  You wouldn't be the fastest but you could go out and have fun. Your limiter would be the swim I think, you need to be getting in the pool at least 2x a week, and working up to the race distance.  Check out the training programs on this site.

1) Do I need to have a $500 bike?

No.  Many people do their first few on whatever bike they have, and start saving for the bike they want.  (Mtn bikes are not uncommon at a sprint triathlon)  $500 is actually the very lower limit for a bike, for a decent bike you're looking more at $1000 and up.

2) Are the pedal clips universal? I am using soemone else bike but don't have bike shoes (pedaling on the underside of the pedal). Can I buy any bike shoe to use with these pedals?

Not sure exactly what you are saying here, but there are many different kinds of pedals and clips.  You could take it to a bike shop and they could probably help you out, but I wouldn't worry too much about it until you're ready to get that new bike/shoes/pedals, etc.

3) What do i look for in a bike? How do i know what size is right for me?

There's a lot of threads on the main boards about bikes and what different people are looking for.  This could give you some info.  It really depends on what you want to buy/purpose you are using the bike for.  As far as size, you can get an idea based on how tall you are, but you'll really need to go to a bike shop or somewhere where they can give you specific info.  Hang out on the main boards and learn/ask questions then you'll feel more informed.

4) How do I find a network of people who do this locally (SouthJersey-Atlantic city & Cape May Area) ?

Look up triathlon clubs in your area using google - there is usually one or two and you could join and see how you like their group workouts etc.

I need help with the swim especially.

Either get lessons, say one or two a month and then work on what you learned, or join a Master's swim team (the best, IMO) - My team is great, but I know that depending on place the team can be unfriendly.  Usually they'll let you swim with them once or twice, so you can check it out before signing up.