Alright, I’ll chime in. I’ve had six mountain bikes in the last two years. It’s where my roots and primary bike knowledge lie. I only mention this to show that I’m not basing the below opinions on theory or bragging, but on my experience going through exactly what you went through and then getting absolutely hooked. Now I roll around on a few highend, boutique bikes after paying for my poor purchasing decisions earlier on.
If you are on a budget and looking for a first time mountain bike, buy used. There’s no doubt about that. You will get far more bang for your buck buying someone else’s good, year-old bike with good components than a cheap, new bike with crappy components. Mountain bike component’s quality of function, feel, and durability tends to relate directly to the price. In other words, unlike some track bike components, you aren’t usually buying bling or peer acceptance with highend mountain components, you are buying performance.
Secondly, buying used will allow you to establish a baseline for what you ride, how you ride, and what geometry you want to see on your next bike. Why make your baseline for comparison with a bottom end bike when your next bike will almost certainly be an upgrade. To say it differently, if your first bike and second bike are along the same plane in terms of quality of build, your focus can be on changing/upgrading only the points that need to be changed (geometry, travel, size, components, etc.) rather than trying to revamp the entire bike because you hated the way your first one felt in general, not specific points. Does that make sense?
Thirdly, if you buy something that feels good, light, and plush from the start, you are more likely to continue riding. However, if you buy a cheap, heavy(ier), clunky bike, there’s a good chance that you’ll hate it and have a $700 paper weight that happens to have two wheels. I only mention this because I’ve seen it before. Riders get burnt out always replacing cheap, fragile components, dealing with fork and shock oil leaks, and constantly truing rims just to keep a poor performer on the trail.
At this point, my first step would be to go testride as many mountain bikes as you can. Ride everything regardless of the pricetag. Note what you liked about certain bikes and how they fit. Go home, look up the geometry and build of the specific bikes you liked. Establish a list of bikes that have similar fits, components, and geometry to those you liked. Then go out to the used marketplace (MTBR Classifieds, RideMonkey Classifieds, CraigsList, PinkBike Buy/Sell (last option)) and look for bikes on your list. It will take more time doing it this way, but if your budget is the driving force behind this purchase, you’ll be happy to have waited.
To answer the mechanical vs. hydraulic question, it really depends on what you ride and how you ride. Hydraulic have a lot more stopping power and modulation than mechanical brakes do. However, if you’re going to be chugging around on local trails for the fun of it, save your money and go mechanical. I’ll take a pair of good mechanical brakes over crappy hydraulic brakes any day. For mechanical, look into Avid’s BB5 and BB7 disc brakes. Avoid Hayes HFX series brakes for hydraulic. Scratch that, avoid Hayes all together… unless you like the feel of heavy on/off brakes.
I hope some of that helps. You are welcome to bounce bike options off here for review. I’d be happy to give insight into what specific bikes are going to feel like.