$500 might be a stretch, It weren't for the horrible keyboard, and horrible screen, it might be worth putting a raspberry pi into as a sleeper project.
I don’t know. You should make sure it doesn’t have a Realtek Wi-Fi card. Otherwise, it looks fine. I found the Linux Hardware report for it here: https://linux-hardware.org/?probe=7144bb41
I think the price to performance doesn’t look the best, though. Maybe go for a Thinkpad instead?
If it’s like the older vtech educational toys it uses some z80 processor, so you won’t be able to run Linux but you can a few different hobbyist microcomputer operating systems like zeal8bit and fuzix.
It does seem like it'd be pretty cool, though much rather them than me lol. I think shoving an rpi inside though would really betray the implicit spirit of the project. That would just be "can a raspberry pi run linux when I put in a plastic case shaped like a children's toy?" The answer would pretty obviously be yes. People are saying the processor in it means it probably couldn't run Linux which would make it a bit of a non-starter but there apparently other OSs that could be made to run on that kind of processor and that'd be cool to see.