Hi Becky,
It basically depends on how long you are going to be travelling for. Bus is the cheapest and best way to travel in SOuth America, whether its on the comfortable coaches or one of the rattling chicken buses, it's generally accepted to provide the best experience
Train travel is largely impossible across the continent.
Hard to say how far 400 will get you without having a timeframe to base it on....but a budget of approx US$40-50 a day should be enough to travel, pay for hostels, etc.
So, are you trekking through Chile to Bolivia? or are you taking public transport? To give you an idea, a bus far from Santiago to San Pedro de Atacama, on the border with Bolivia, will cost you about $50US (could be more now than when i did it a few yrs ago...)
If you have already taken care of travel expenses as far as La Paz, then 400pounds will be more than enough to get you to Lima.
I'd recommend busing from La Paz to Puno, change buses there and bus to Cusco (a 10hr trip). Cruz del Sur are a good company to use for this trip. Once you get to Cusco, it's recommended that you spend 3-4 days there before attempting the Inca Trail in order to acclimatise. It varies from person to person, but some people suffer from altitude sickness when they first arrive.
It's possible to see Machu Piccu without doing the trail itself (which takes 4 days). If you dont have the time and the money to do the trail, you can take the train from Cusco to Machu Piccu early in the morning and spend the day up there. The Inca Trail trek itself will set you back a few hundred if you decide to do it, so if your on a budget you probably wouldn't be able to do this.
From Cusco you can then bus to Lima. This is an overnight trip over the Andes and again takes 10-12 hours as far as I remember. Again, you could do this trip with Cruz del Sur.
Opt for the coche-cama seat when you're doing these trips. Believe me, it's worth paying a little extra, especially if you plan on sleeping. 
Hope that gives you a better idea of what to expect.
Ev