It may be possible to repair the pump but it would need to be done by a diesel specialist, these will generally be cheaper than a dealer anyway as they usually know what they are doing. The cheapest way would probably be to fit a secondhand pump and alternator, that's what I would do but not so easy if you are are not a DIYer. £500 actually sound quite cheap for a new pump but a second hand one should be much cheaper.

You have to remove the cam belt to get the pump off, in view of that it would be prudent to fit a new belt and as the water pump is also driven by the belt it would be wise although not essential to replace that at the same time.

I have just changed the alternator on my '96 806td as mine had PAS fluid all over it, from a leak, and this was a straight swap, I can't see why you'd need to have the waterpump and cambelt done, I suppose with 20%vat they're trying to rip you off and get quids in.....

As for the pump, I had major immobiliser issues with mine early last year and was quoted £1200ish for a new one at euro car parts, not a cheap option!! so I'd try and source someone clued up for advice on sealing the leak before replacing it.