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1) You can absolutely use it, I've seen DCi Dynamiques setting times around Snetterton on sprint days.... they weren't remotely close to winning anything, but I'd imagine it was enjoyable nonetheless.
2) You'll get almost precisely sod all return on putting any money into that engine. Seriously...
Wouldn't bother. Not unless you're going to add an amplifier for them as well.
The stock units are fine once you cut bass to them (head unit settings)
Adding "budget" speakers wont get you much further than what you've already got tbf. If you've got a dead cone then just swap out like-for-like.
OK, here's my sensible suggestion:
Get your suspension first. Even if it's the cheapest, nastiest set of ADJUSTABLE coilovers, just get them on.
THEN, and only then, start worrying about your wheels. You'll be able to borrow other size rims and tyres to test their fitment and there'll be a lot...
Given you only want to spend £500, you're wasting your time thinking about wheels to get, just them alone with tyres (yes, even doing-it-on-the-cheap, stretch-tyres) is going to blow your budget-hole wide open.
Image 1 - Millionaires , engineers and playboys surrounding a developed racing car - Millions spent
Image 2 - A selection of students staring at an old french hatchback with wheels that dont fit. - More spent on the wheels than the car
Then you need a full set of adjustable coilover suspension, new wishbones and all sorts.
And all to end up with a Clio that can't move along most roads.