I think the rear surrounds are too close to the listener. If you have to have them right behind you, it might sound better overall not to have them at all. They will draw too much attention to themselves, and be distracting instead of immersing.
On that budget, I would turn to Infinity Primus speakers (except for the 142's) or Behringer 2030p speakers. Either can be purchased from B&H Photo pretty inexpensively. For a sub, I would look for used, good ones, from SVS, Outlaw Audio, Hsu Research, Elemental Designs, Epik subwoofers. Check the classifieds here at audioholics, and also AVSForum.com, Audiogon.com, Hometheatershack.com, and company website message boards, such as Elemental Design's site board, Hsu's website forum, etc. If you are thorough, you can get a awesome sub for a great price. Also look on ebay. You probably won't have much luck finding a really good sub on craigslist though.
For receivers, I would check out refurbished ones, or company outlet stores on ebay, such as Harman/Kardon's ebay store. Get speaker cable from Home Depot or monoprice.com.
I think you can get a great system that way and still have money left over.