Check this link for a possible electronics solution:
If you are looking for a simple one box solution which will increase your TV sound enjoyment, the ZVOX systems are really good.
Check out the ZVOX Audio Z-base 550 or Incredibase 575. They both come in two versions, standard (analog inputs) or HSD which offers optical input from your TV.
I believe ZVOX offers a 30 day in home trial too. Can't go wrong if you are just looking for greatly improved TV sound.
Almost double your budget, but the B&W Panorama would fit the bill nicely. :) I am sure there are other similar solutions. I think Polk has a setup that includes a subwoofer for under $500. Or you can do what I do and use a pair of Audioengine A5s. However if your TV is like mine and has only fixed level outputs when the internal speakers are off, you have to walk over and adjust the volume manually!!! How old school is that?!!
Well, I'm a little reluctant to have this be my first post on this site (I don't want to be mocked out of the group), but I've found the Zvox 575 HSD an interesting product worth experimenting with. Of course you can use it out of the box for lazy, one-cord pseudo-surround sound (and I do mean pseudo), but it's when you start to go beyond that that things get more interesting.
In brief: I use it as a bedroom system where I mix genuine stereo with the Zvox's phasing tricks. I put bookshelf speakers to the left and right of the Zvox on a low 4' table. I power the bookshelf speakers (Phase Tech PC 0.5s in my case) with a Decco2 and feed the fixed outputs from the Decco2 to two of the Zvox's analog RCA ins (you could use the preamp outs of the Decco2 to do this, but I get better results as described). The near-field result is very intriguing, and the Zvox takes care of low-frequency work (supposedly down to 35 Hz) that the bookshelf speakers can't do on their own. You adjust the balance of the bookshelf speakers and the Zvox by adjusting the volume of the Zvox (via RC only) and the volume control of the Decco2.
The well-meaning guy at Zvox in Massachusetts tried to talk me out of what I knew in my head would be an interesting idea. I'm glad that I went ahead and got the Zvox and started playing with it. The set-up shows off the versatility of both the Zvox and the Decco2 from Peachtree Audio (DAC, preamp, low-power amp that can handle 4-ohm speakers). For movies, I use the analog out from my multi-region DVD player; for CDs, I rely on the coax out from the DVD player to take advantage of the Decco2's DAC (the latter can't decode DVD sound, as people smarter than I will already know). In both cases, I keep the Decco2's tube switched on, as you really can tell a nice difference.
So you can show movies and play CDs as is with the above set-up, or you can throw in a surround-sound processor and have the Zvox handle L+R and/or center-channel material, and even subwoofer/LFE duties (it even offers a sub out, acknowledging that some people will want more oomph than the Zvox itself can provide). The Zvox cheerfully mixes two sets of analog inputs.
When I use my B&K surround-sound processor, I have 6.1 or 7.1 (depending on how you're counting) and the best of compactness and oomph. I don't see how I could get much more out of a tabletop system for the money.
Some people might not consider the Zvox an audiophile product, but I have had a lot of fun with the thing and salute the creativity that went into making the product. Remember NEAR FIELD, because the magic of the above system drops off remarkably if you get too far away from the set-up described. But you could say that about a lot of audio systems. NB: you could use the free variable-out RCAs on the Decco2 to feed a powered sub or a second system. Versatility!