I have done some more research on the extending of a LAN to over 500' away (distance between shop & house) and discovered an interesting thing I thought I would share.
The method I am going to try first (cheapest) is to extend it using wireless technology. I bought a couple of 2.4GHz external antennas (14 dbi gain) and a wireless access point (WAP) so I can plug into the existing 802.11g router (Linksys 4 port) in the house. I am going to try setting up a point-to-point link line of sight between the two buildings.
When searching for hardware, all the computer geeks in the stores suggested I use the latest 802.11n networking hardware rather than the older 802.11g equipment for this since it has higher throughput (100mbs vs. 54mbs) and a greater range. This however is not true for this application from what I have read.
The basic difference between 802.11g and 802.11n is that 802.11n uses MIMO (multiple in - multiple out) antenna technology to establish seperate signal paths and then recombine to get the greater throughput. Usually these signals arrive at fractionally different times as they have travelled different distances by different routes, and can cause some interference when using just one antenna. With MIMO, by using multiple antenna, these reflections can be used to improve the signal, as instead of having just one copy of the original signal, the hardware now has multiple copies and can use whichever one is best, comparing them many times a second.
By having more than one signal to choose from, MIMO allows the wireless hardware to reach much greater ranges, with better signal strength ( and hence better speed ) than conventional wireless hardware.
One downside to MIMO hardware, is that it is usually not suitable for very long range point-to-point links using an external antenna, as the multiple antenna of a MIMO access point are usually not removable. Some MIMO routers don't have and external antenna at all. So if you want to connect two buildings wirelessly, it would be best to use conventional 802.11g harware rather than MIMO specific hardware with multiple antenna.
I'll let you know how it works when I get it all up and running.