ok, i have been pretty quiet lately, but i've got to throw my 2 cents in on this one.
In my opinion.....the only way you can break even on this is if scrap iron goes to $250 a ton, and that's before you spend the money & time to find a divorced transfer case, a front end, and a ring gear & pinon to make it match the rear end. After you get that several thousand dollar investment installed you will need to get more aggressive tires. Couple more grand? Then you'll need a winch, an electric one won't do, you really need a pto winch. Well crap, now you need a pto to fit the tranny, or transfer case. Good luck finding a good used one. I won't go into the 1000 little unforseen things that will need to be done to get this project right.
I figure that when you finally get that tug transformed into a halfased skidder you'll probably have about $8000 tied up in that $500 tug, and that's all anyone will ever view it as is a $500 tug. You'll never get your investment back when you're done with it.
I personally believe that you'll be far better off buying a tractor of some sort to fit the budget. At least you'd be able to sell it when you're done if you want to.
If you're planning on moving logs, nothing works better than something that was designed to do the job.
Andy