I just helped my father set up a small system in his new apartment and am familiar with some of the better product choices in this category. You can put together a system that sounds good to very good including a subwoofer for between $1200 and around five grand US, depending on how much detail you want to retrieve.
The electronics and speakers already listed above are excellent choices. I really like the Totem Arros if you have the room for an extremely slight tower speaker. To the electronics listed I would add two NAD products, a Music Hall product (all at lower cost points, but pretty good for what they are), and a relatively new Naim system.
Even the Linn or Naim are not going to drive high end speakers to their full capability - so I suggest a range of modest bookshelf speakers and subwoofers below that will produce pleasing music, but also be forgiving of the electronics driving them. All the speakers listed below have furniture level cabinetry in addition to quality sound. Try out different speakers at the showroom to see what you like, you may decide to go higher than these to personal taste.
Don't forget decent speaker cables and an after market power cord. The power cord will be particularly important as the smaller power supply in these all-in-one units are somewhat hand-to-mouth, and benefit from a big hose to the wall socket. What you save on interconnects and additional power cords needed for a larger multi-box system you can invest in better gear, the wires you do need, or music and movies to play on your new system.
Some electronics to consider:
Music Hall Trio (no DVD but sounds very sweet)
http://www.musichallaudio.com/mmf_products.asp?show=true&prolook=trio
NAD VISO-FIVE (award winner)
http://nadelectronics.com/products/av-receivers/VISO-FIVE-DVD/CD-Surround-Sound-Receiver
NAD C-717 Micro (very small)
http://nadelectronics.com/products/av-receivers/C-717-Micro-DVD-Receiver
Naim n-Vi (pronounce "ENVY", most grunt in the group)
http://www.naim-audio.com/products/n-vi.html
and a few bookshelf speaker choices:
Aperion Audio bookshelf speakers (well rounded bargains)
http://www.aperionaudio.com/catalog/Satellite-Bookshelf,20.aspx
B&W CM-1 (beautiful midrange and treble)
http://www.bowers-wilkins.com/display.aspx?infid=1065&sc=hf
Epos M5i (new, nice)
http://www.epos-acoustics.com/products/m5i.php
Era Designs 4 (beautiful cabinet, smooth sound)
http://signalpathint.com/index.php/Design-4-Series/
Era Designs Flat Panel Series (different)
http://signalpathint.com/index.php/Flat-Panel-Series/
Focal Chorus 806V (very efficient and live sounding)
http://www.focal.tm.fr/
Monitor Audio Radius 90 (tiny)
http://www.monitoraudiousa.com/product.php?range=4&product=25
Monitor Audio Bronze 1 (good bargain)
http://www.monitoraudiousa.com/product.php?range=8&product=55
Totem Acoustic Rainmaker (wide dispersion, lively)
http://www.totemacoustic.com/products/compact/rainmaker/
Usher S-520 (get it on at an affordable price)
http://www.usheraudiousa.com/products/loudspeakers/usher-series/s-520-shielded
and some subwoofers:
Aperion Audio Bravus 8D
http://www.aperionaudio.com/product/Bravus-8D-Dual-8-Powered-Subwoofer,104,66,241.aspx
REL T2
http://www.rel.net/index2.htm
Totem Acoustic Storm
http://www.totemacoustic.com/products/sub-woofer/storm/
