You might want to consider a headphone system with multiple headphone outs.
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Bogdan: I am afraid for 500.00, you'd probably can't do better than what she came up with.
I bought a pair of Image 5T for my sister and they are not bad at all considering their price. The only thing I can criticize about the 5T is that they do not have the warm midrange of some of the high-end British speakers. Other than that, as far as imaging, dynamic, top-to-bottom balance, they are really good especially at their price range. Or you could buy a pair of Acoustic Energy Aegis 1 (this is the older model NOT the EVO) for about 200.00 which would give you 300 for a used integrated amp.
As for the amp, you could buy a used Nad 320BEE for about 300.00 which may bring the cost up a bit and you have to forego the AM/FM or you can save money to by decent second hand AM/FM radio later.
Just saw a pair of Acoustic Energy Aegis EVO1 for sale on Audiogon for 195 you can check it out. These are What HiFi Speakers of the Year. They may not have the bass of the 4T but IMHO have better midrange and sweeter treble. You can play these super loud without distortion. The Nad 320BEE would be a very good match as recommended by What HiFi.
This would be a perfect 500 dollar system and I doubt you'll find a better system for the price. You may have to wait for a AM/FM radio though.
Bogdan- You may or may not be able to do better, but it wouldn't be by much at the price point. so...I like Plato's suggestion and keep the peace and marital harmony and make your wife look good here!..Thats the best thing for sure! Your kids's not going to care about the sweetness of the highs or the soundstage and imaging anyway! :)... just MHO Ken
I had a Yamaha receiver and really liked it. I then moved to the NAD c320Bee and like it better. I would stick with the receiver because you listed radio listening as one of your top priorities. I think the Image 4T's are a great price, you probably can't do better. All in all, I think your wife is right!!
I'm not a 100% sure but, I don't think any receiver pre 90's, maybe later had hook-ups for DVD-A. I could be wrong. The Yamaha receiver's not that bad. My brother in-law bought one and has been pretty happy with it. You might be able to do better on the speakers buying used here on A-gon, not that there's anything wrong with the PSB speaker. It's hard being an audiophile on a budget, but we've all been there. Get what you can afford, enjoy what you have, and when your situation improves, UPGRADE. :)