I ave not auditioned very many items in this price range, but the Gallo Nucleus Micros with powered sub (new) are well within this range. I did a brief audition of them and was very impressed.
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I can give you a quick primer, but this is all based on some web-research I did a couple of months ago. I was looking for the same arrangement - 5.1 sub/sat, smallish size, same budget - for my fiancee's apartment. It was my way of saying that I was sorry for going overboard on my own system(s). I should have sent flowers instead!
I ended up scrapping the "mini" plan and getting Bohelender Graebener Radia X3 for fronts with an X1 center and Mission 780's as surrounds... plus a DVD player, CD player, a line conditioner, a nice rack, a B&K 6 channel amp. Whew!
Anyway, let me share my research with you (mostly word of mouth from other A'gon members). First, I ended up with an Outlaw 1050 receiver, new for $499, and importantly, this led me to the "Outlaw Saloon" which is an excellent source of reading for sat/sub combos on a budget. If you want to stick with a "mini" system then here are some top picks:
1. Axiom Audio. Look at the Epic Micro HT system, but also Epic Mini, Epic Midi. Epic Master, etc. If you go to the Outlaw Saloon, a couple of the threads will lead you to a Canadian guy name Marc at audioshop.on.ca Nice guy, easy to deal with, and great prices! I almost went this route, but then went with the BG's. Even with stands, you can do a very nice Axiom system within your budget comfortably. Plus, they look great! Very high WAF.
2. There is also some good press on the Boston Accoustics System 9000 II, but this is more in the $1,000 range. Same for the Polk RM 7600 system. Not bad, but your budget will take you further. Energy was another company that I looked into briefly. There were several others mentioned that I can't remember now.
If you will consider monitors, then there are tons of good options, including Tyler Acoustics Reference monitors, and also an online direct marketing company called Home Theater Direct (they have Levels 1, 2, and 3). The Level 3 stuff is apparently pretty good, but again, this is second-hand from another A'gon member who paced me through some of the options he had looked at. I love the Mission 780's but I also know there is a strong voice for the Triangle Titus XS for $499 new. I guess I should let the old pros help you in choosing monitors (if small monitors are within the range of what you've called "not too big").
You should look at and listen to the Acoustic Energy AEGO HT system. The two channel system got rave reviews from Stereophille. The HT system is even better. The HT system cost around $1200. In addition to the powered speakers and the sub, a DD and DTS processor is part of the package. The system also allows a second sub to be added.
There's a lot of variables here, including set-up!!!..which most people don't even consider. Are they going to be mounted, or free standing on stands? Also, do you have any other gear already?...or is this first on the list (which it should be). If I knew about your room as well, I could make some suggestions, Dending on your room, it makes a huge difference as well. Also, new or used?
You might want to check out Aperion Audio. They are a mail order only manufacturer. Their speakers use a new crossover technology that features a DiAural circut. Rave review from some of the more prominant audio publications. Their website is available through the Manufactures listing on Audiogon. No experience with them but they have good reviews, offer a 30 day return and seem to fit your requirements.
I have the Aperion Audio 5.1 system with the 12" sub. The sub is very large but the satellite speakers are quite small. This is a super home theater set up as long as you have adequate power, at least 100 watts per channel. The satellite speakers aren't very efficient.
While I don't use mine for straight music listening I can say they have a very pleasing tonal balance and lots of dynamics. A very fine company, a pleasure to deal with. The bang for the buck is going to be real hard to beat.