The best thing you can do first is spend at least 2 weeks cruising forums or better yet a month before you buy anything.
You will already have better sound than the theaters if you are at home w/ crappy equipment for one simple reason, THERE IS NO-ONE ELSE THERE! The reason they were asking about your neighbors is: a sub which is part of a nice $1k system will disturb your Neighbors if they are too close to your room, relatives in the same house will be annoyed too... There are any number of brands that will surpass a theater experience for under $1k in a bedroom. Brands to check out are Ascend, Aperion, Axiom, AV123, Polk, Jbl, Athena, Energy, Mirage, BIC, HSU, SVS, Infinity, HTD, Boston Acoustics... and many more. You will need a reciever too but that depends on that other equipment you will be using(xbox 360, PS3, Computer, Blu-ray, Cablebox) and the speakers. Google is your friend for finding the sites and forums like these mention great sites to find deals. Other useful forums would include avsforum.com and audiocircle.com. Retail sites include accessories4less, vanns, frys, crutchfield, best buy, circuit city, magnolia, partsexpress, monoprice(for cables and wires).
For your budget I would shoot for the av123 x-series of speakers, a BIC H-100 sub and depending on your sources and futureproofing I'd choose one of the Onkyo 505,506,605,606 models which can be had from shoponkyo (subtract $10 if you sign up to be a member) or accessories4less.
If I think of anything else I'll edit the post and specify what I changed.
