$700? Ouch. That's pretty much home theater in a box territory. My suggestion is to either up the budget to $1500-1600 or put together a system a piece at a time starting with say 2.0 or 2.1.
$800 Option 1:
One pair of Behringer B2030P bookshelf studio monitors (~$130/pr shipped). These are really homely but sound great for the price. Add a Dayton SUB-120 ($155 + S&H) subwoofers; and a refurbished Onkyo TX-SR607 for $279 at Accessories For Less. That's about 770 with shipping. In phase II you add more pairs of Behringers B2030Ps as center and surrounds. Phase III you add a second subwoofer if needed.
$800 Option 2:
One pair of Infinity P362 towers ($400/pr shipped from the Audioholics Store) and a refurbished Onkyo TX-SR707 ($400 from A4L). Total about $800. In phase II you add a nice sub, phase III add the matched PC350 center, in phase IV add P152 bookshelves as surrounds. Once finished this would ROCK!
Quick & Easy $1600
SVSounds SBS-2 Deluxe 5.1 ($1150 direct) speaker/sub bundle plus the Onkyo TX-SR607 from A4L.