Thats a hard budget, but by no means impossible (just impossible to get awesome sound, good sound yes)
With Buckeye's recommend sub, I would also look into these for speakers instead of in-wall
They are small on wall -
LINK
Maybe even the first sub option with that link.
For a receiver I would look at this -
LINK or maybe
LINK
Audioholic review of one of those receivers -
LINK
Both of them will produce plenty of power.
In-walls that are decent will cost quite some more money, you would be better with small on-wall.
Here are some in-walls to consider - (still within budget and would/should be a great set and comes with a subwoofer that is pretty darn good)
(795.00 and Free shipping is a great value for this set, THE CENTER CHANNEL IS AWESOME)
Yes, they are authorized dealer -
LINK
Here is same set, but with one extra in-wall for the center (the other center would be worth it IMO)
Same set different center 699.00 and free shipping -
LINK
(these people may not be authorized, but it is a good price)
This will leave you with 205.00-300.00 for a receiver. Which you can pick up some ok ones for that.
But just shop around a tad more, or use eBay...
(Those sets will not require a ton of power to get them at decent sound levels, so a bargain/budget receiver will be perfectly fine with them)