NMAC BTWN AN ENSTROM HELI WITH STUDENT PLT AND INSTRUCTOR CIRCLING TO LAND AT 500 FT AGL AND A C172 AT THE SAME ALT TURNING DOWNWIND TO LAND.

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I HAD JUST COMPLETED THE ILS APCH TO RWY 16 AND WAS CIRCLING TO LAND AT OUR HANGAR. THE TWR TOLD US TO CIRCLE TO THE W; WHICH IS WHAT WE DID; AT OUR NORMAL PATTERN ALT OF 500 FT AGL. TWR WARNED US ABOUT AN ACFT DEPARTING RWY 30 AND I TOLD THE STUDENT TO START SLOWING UP TO PASS BEHIND THE ACFT. THE TWR THEN TOLD US TO PASS BEHIND THE OTHER ACFT AND A CESSNA CAME FROM THE W -- RIGHT IN FRONT OF US. WE HAD TO DO A QUICK STOP IN ORDER TO AVOID HITTING IT. THE TWR CTLR THEN ASKED THE CESSNA WHAT HIS ALT WAS AND HE REPLIED 500 FT AGL AND TWR ASKED WHY HE WAS SO LOW ON HIS DOWNWIND (FOR RWY 30). I DISCUSSED THIS INCIDENT WITH THE TWR CHIEF; THE TAPE WAS REVIEWED; AND THE CESSNA HAD BEEN TOLD TO RPT 2 MI OUT; WHICH HE DID NOT. THE CTLR SAID THE ACFT WAS TOO LOW FOR RADAR AND SHE DID NOT EXPECT HIM BECAUSE HE FAILED TO MAKE HIS RPT. ONE THING THAT CONTRIBUTED TO THIS WAS THAT MYSELF AND THE CTLR WERE FIXATED ON THE ACFT OFF RWY 30. I MUST CONTINUE TO LOOK FOR TFC -- ESPECIALLY IN SUCH A HIGH DENSITY TFC AREA. THE TWR CHIEF DISCUSSED THE INCIDENT WITH THE CHIEF PLT FROM THE SCHOOL.