I'd invest most of that in the AVR and the subwoofer. For speakers, I'd hit thrift stores and pawn shops and look for a quality pair of speakers. $6 to $40 should get you something from a reputable brand. Or I might search pawnshops, online ads, etc, for something that was very popular, like an NHT Zero, PSB Alpha, and buy pairs or singles until there's enough for surround. I might not worry too much about finding matching rear speakers since even identical speakers don't sound the same when located in different parts of a room.
And for the subwoofer, I'd probably just buy a drive (or two or four) from somewhere like Creativesound.ca or Parts Express, get some 3/4" MDF, and spend a weekend making sawdust with the router. For the sub amp, the cheapest option could be to run a car amp from an ATX power supply, but a stereo receiver or integrated amp of reasonable power would do in a pinch. I'd try to obtain a basic power amp, like a Carver, NAD, Adcom, or a semi-pro amp. I lucked into a Behringer EP2500 for under $250 once; that's enough watts for even the criminally insane. Plate amps may be more convenient, but they aren't as good a deal as a used amp.
While touring the thrift stores, I'd keep an open mind in case I came across a used AV receiver. I've seen Dolby Digital receivers for $20 to $45. Down the road, upgrade to a proper HDMI receiver, preferably 7.2 Stereo subs could be good for music, but right now that feature seems limited to higher end models.