As an example. On Clist near me there is a pair of PSB Image 4T's for $200. This speaker 5 years ago was I beleive $700 for the pair. It's a great speaker for $200.
I need to move to where you live... all they ever seem to have on CL here are Panamax and other white-van "$4K MSRP" speakers for $300obo... Well, there are the occasional ads for computer speakers or 20 year old polks with trashed woofers. This is the second time I've noticed you posting a fantastic deal from CL in your area... I'm jealous!
To Greg: If your budget is that small for your whole setup I think anything ".1" is going to be out of your budget at the present time. Perhaps you might want to think about just getting a pair of decent bookshelves that have some reasonable bass output and save up and be patient for the rest. I've done this (~6 years suffering through budget Klipsch setup that IMO had non-existent midrange). I think you will find it far more rewarding to put that entire budget into just 2 speakers than what you are likely to get for a full 5.1 setup at that budget.
You could get two pairs of bookshelves and a center in a very budget brand (the
Pioneer SP series comes to mind - also
here) and be under your budget - but you'd be hard pressed to find any decent sub for that entire budget. The other problem with this setup is that if you are committed to not having anything on the floor - then you are further going to be limited in bass extension in anything that's isn't front-ported - which is another problem. Although I haven't heard them myself - you could pick up a pair of
Mordaunt-Short Carnival 2's for a little less than your budget or a pair of
Ascend HTM-200's . Then you could save up for a sub of similar budget ($300-400) and have a really good 2.1 setup. Down the road you might decide to move higher up in the product line (whichever one you choose) and get slightly more expensive and more capable speakers.
In any case with a room that large - you're going to either need a very competent sub, to have towers for your fronts, or up your budget even for just a single pair of bookshelf speakers. Again jinjuku makes a great point in that what I've suggested is just some of what's available retail for your budget - you can get some much higher-end speakers for the same if you find a good deal used. However, buying used can be somewhat daunting if you are not already experienced in what you like and what things are worth - since often what people say their speakers are worth is not actually the case.
As a late edition (and not something I would normally recommend to anyone - simply because I don't think you're getting the best sound for the money... but it would easily fit in your budget and space constraints) you might consider
something like this or
this one. I only recommend it because you've already mentioned listening to music from the iPod and an initial leaning toward Onkyo as a brand. I'm sure that AVR is less than optimal (although comprable to the one you mentioned), but you would still have some room-correction (Audyssey) and would have your full setup for less than your budget and 'pretty decent sound' I would expect for the price. Then in your man-cave you could save more and put in a much more capable (and probably less kid-friendly) setup to really crank up and enjoy!