Receivers:

I would check out the Yamahas and Pioneers at Worst Buy. They have 5.1's with 100w/channel for as low as $200. You can upgrade to 7.1 and some more features for around $300. Those are good brands to look at in this price range.

Subs:

One option may be the Dayton subs at Parts Express. There is a 12" 150W that could be had for $150. I have not heard these subs, but they come well recommended. Otherwise your best options would be the Velodyne VRP series at Circuit City ($300 I think) or the Athena at Best Buy ($300). I would personally stick with the 10" drivers instead of 12" if you are using it for music. If only for home theater, go with the 12".

Speakers:

This is a little tricker, and there should be about $1000 left for the front, rear and center speakers. It really comes down to personal preference, and you should be able to get something pretty good for $1000 or so. I would not go to a big box store for these, but shop around at local hifi stores and see what you like. Most brands will come in a variety of finishes.

I would personally stay away from those small satellite systems, since they have trouble with the mid-bass. A couple bookshelfs for the front are probably your best bet. Tower speakers may be out of reach in this price range if you also need center and surrounds. Brands to look at include Paradigm, Energy, Klipsch, Athena among many others.