Consignment stores are often a great place to shop for formal wear. But you need to have patience and luck. Luck will get you the perfect dress on the first stop. Patience will usually yield a decent dress in the right size after a few stops.
David's Bridal often has a clearence rack. I bought a lovely beaded empire waist gown for $50 last year about this time off the clearance rack for a New Years Party.
J.C. Penny's and Sears - of all places - carry formals. Usually around $100 new, and they clearence them often.
Some people have luck on ebay or the internet (Chadwick's sells formals). I have lousy luck with clothes and the internet. I like to be able to touch and try on.