dlh1999,
Have you ascertained that the noise is coming from the distributor? It's not unheard of for bearings to fail inside, but on a 97? That's a little odd. Make sure you listen closely to the engine when it's making the noise to determine where it's coming from.
If they are replacing the whole distributor body, yes, those prices are not too out of line. I replaced the distributor body on my 1988 Integra a number of years ago and the part was about $200. Now, I suppose it would be possible to press out whatever bearings are in there and replace them, but shops these days just swap out the parts. It's not really worth their time to rebuild something that would take an hour or two when they can bolt on a replacement.
So, what parts were you looking at that were much less? Granted, things like the ignitor, cap and rotor cost next to nothing compared to the body...but I'm assuming that it's the body that failed.
One other thing to keep in mind. Have you taken the distributor cap off to see if the noise isn't coming from something as simple as the rotor?
Bogatyr