If you boost your AVR budget a bit (or do some creative shopping), I'd recommend the Denon 3805. Excellent sound, plenty of power, flexibility and versatility galore, etc. As far as a $700 speaker system, it really depends on what your needs are. If it's strictly HT, maybe look at Paradigm's Performance line or Phase Tech's Velocity series. If you dabble in music as well, I'd suggest putting a bit more into your front speakers and then building a reputable 5.1 around them.
Jason