Given your budget and room constraints, you might think about just starting out with front L/R/C channels and a subwoofer and then add surrounds later. A good subwoofer for that size room will start at around $500 so you don't have a lot of money left to play with. I would probably even start with just a 2.1 system for now and add the center later and then the surrounds.
one other thing, given your room issue, you might think about in-ceiling for surrounds. They're not ideal, but their limitations are really minimized when you're talking about surrounds rather than fronts.
are you open to used equipment? You'd certainly get more for your money there.
as for the receiver, any of the options from Denon, Onkyo, Yamaha, Pioneer should be fine. At that price point, you're going to get a decent AVR no matter what brand you go with. I would second the idea of minimizing the amount you spend on a receiver and switch that budget to speakers if at all possible.