Depending on how far you plan on taking this, you may want to build slowly. Put the bulk of your money into the speakers. A decent AVR can be had for $300-$400. You could use the remainder of the money on some nice fronts and center, then pickup a sub and surrounds later.

I would suggest finding a mid/high end audio dealer in your area and start auditioning speakers.This will give you a good idea of how far you wanna go with your starting budget. Your local Best Buy may have a Magnolia ministore inside. This could be a nice place to start also.