I've had just about all the pod's since the original one in '99 - and have always used it directly. 
Some of them (the XT as mentioned) did not do as much for me. The X3 (that is the one before the HD series which is the newest one) actually did have some quite nice amps for both electric, bass, acoustic and preamps. 
And also included was the PodFarm :)
 
For a small home studio I would say the X3 is quite nice, as you could (easily) get some good tones out of it, and it is so versatile. I think it is easy to use also. 
The POD HD series does have better sounds, but I will say you have to use quite some time to get those sounds. It is complex, and less versatile. But I think some of the sounds I get out of it (using my studio monitors) is very good. 
(I have a HD500, BTW)

 I had the X3,sold it and bought the HD500...now I wish I had both of them. The X-3 seemed to have more flexibility in certain areas. The X-3 was nothing to laugh at if set up correctly. You can get one of those for a pretty good price now used.
 
 What I like about all the newer Line 6 gear is that it is very similar to software updates in that you can save the old setup,create your own setups to save and then the company is constantly updating the internal memory banks of the PODs....they are taking awhile on this last promise for an update though. Usually it is an improvement and it's simple to connect your unit through their software updater called " Line 6 Monkey"( Daryl would probably like this title)..  
 
 The poster mentioned that they record through usb and re amp. I would try recording from the analog ports to see if you notice an improvement. 
 
 Kristoffer- Have you tried to edit your HD500 using the computer software that comes with it? I found this to be a much easier method. Similar to editing Amplitube or Guitar Rig. Pull your effects in.. add your cabinets,stomp boxes and place your virtual mics...easy to work with IMO. Taking it a step further I can change the pickups in my virtual guitar software...even space them and select output ranges. The only trick I seem to be hung up on presently is to get that stereo spread I hear on so many other guitar tracks. Even with panning and multiple tracks I seem to have difficulty in getting that effect,at least to the degree I want it.

Starise
 
 Kristoffer- Have you tried to edit your HD500 using the computer software that comes with it? I found this to be a much easier method. Similar to editing Amplitube or Guitar Rig. Pull your effects in.. add your cabinets,stomp boxes and place your virtual mics...easy to work with IMO. Taking it a step further I can change the pickups in my virtual guitar software...even space them and select output ranges. The only trick I seem to be hung up on presently is to get that stereo spread I hear on so many other guitar tracks. Even with panning and multiple tracks I seem to have difficulty in getting that effect,at least to the degree I want it.

Yes, I've been using the "HD500 Edit" as much as I can, it is much easier than the small LCD screen with a bunch of not intuitive (to me.... ) knobs. 
But when I'm not connected to a computer and want to dial in a killer tone, I'm scre**d.... 
 
No, seriously, after some hours with the unit it is fine. But this thing is so advanced I probably don't use more than 10% of its potential.

There are so many good tools, internal and external. My philosophy is to capture a good performance, maybe w/some kind of a DI/AMP config so you get the resonance of the instrument through an amp "as you play it." 
 
But then there are just so many superior options once it's in to effect it? I think that's the way to go. And if you effect it "on the way in?" Well that cement has dried and yes, that's an imprint of your "insert inappropriate remark here." As for live performance, there are still options "ITB" that you can use live. In the box is the way to go. 
 
However, I could be wrong, and probably am, so please keep that in mind.

I have the HD500 and DT50 1X12. Together they are awesome. For live work it really is a nice rig. For recording direct the HD500 is pretty good when setup right. It is easy to make it sound bad, but with a lot of tweaking I've got some patches I use some. I bought MixIR and some Redwirez IRs to see if they helped. Some people say it makes all the difference, but I like it just as well using the built in cabs. It's nice to have...I'm keeping it, but I've been thrilled with Amplitube Fender lately. I have a real Twin and the DT50/HD500 and 90% of the time I'll use Amplitube.

I had a Pocket POD and wasn't real happy with it. Then I picked up the rack mounted POD HD Pro, and I'm liking the sound I'm getting now.