Denon 1707 = $400 online/$450 Crutchfield
Klipsch Quintet III = $400 online
or
Klipsch Quintet II = $299 from Vanns.com
Klipsch Synergy 10 Sub = $300
I have a similar set-up, (Denon 2805, Quintet II, Reference 12 sub, all of which are for sale -- wife hates the component look and wants a soundbar), in my living room (which is large - 18' x 18' x 14' ceiling), and it sounds fantastic. I like it as much as my dedicated theater's sound system, of which I spent 8x on...
We were watching/listening to the Dave Mathews Band on Storytellers via MHD last night with a group of friends and I just sat back and grinned - they still can't believe how good it sounds, given its diminuitive size. My wife isn't crazy about having 5 speakers in the living room, along with separate components for everything, but she loves the sound of it. I have a feeling she'll be displeased with the Soundbar, but that's not my call...
People often discount the Quintets as "computer speakers," but they sound really good to me, and they can handle clean power. If it's your first surround sound system, I'd go simple and inexpensive, and enjoy the Denon/Quintet combo.