I need your expert help.

Speakers that are too small for the room won't cut it - how big is your room?

Do you listen to a lot of music or is this mainly for movies, TV, radio?

You can do 7.1 but do you have the space for it?...that is, is your seating position (couch) against the back wall? On a limited budget I might suggest 5.1 instead and use the difference towards better speakers. Up to you though..

How about this -> http://www.svsound.com/products-sys-sbs_black.cfm

5.1 is cheaper and with a receiver you'd go a bit over budget. You could always add two extra speakers later. It's geared more towards being a great performing home theater system, mainly because of the sub. Still too big?

I'm sure it is, here's the owner's thread -> http://www.avsforum.com/avs-vb/showthread.php?t=625876

The smallest I'd go is an Energy RC-Mini (4.5" driver) -> http://www.vanns.com/shop/servlet/it...energy-rc-mini
http://www.vanns.com/shop/servlet/it...rgy-rc-mini-cc

Nice looking speakers...they have real wood veneer. They're quite popular but only the cherry and rosenut are reduced in price. I like the rosenut. With a decent budget sub and receiver they should be in the ballpark.

These Jamo speakers look promising but I don't know anything about them...except that Jamo is a respected speaker brand that just doesn't have a big presence in the USA:
http://www.vanns.com/shop/servlet/it...1827/jamo-c401
http://www.vanns.com/shop/servlet/it...2/jamo-c400cen

You could definitely do 7.1 and be within budget going with the Jamo. Here's the Jamo owner's thread -> http://www.avsforum.com/avs-vb/showthread.php?t=872526

7.1 isn't really worth it right now...you're going to be paying for 2 speakers that aren't used in 95% of the things you are listening to...I'd take the money and make a better 5.1 system...

You could get the Pioneer VSX-919 for $400.

http://www.amazon.com/Pioneer-VSX-91...4771730&sr=8-1

And then you can get the Paradigm Cinema 70 for $650.

http://www.amazon.com/Paradigm-Cinem...4771767&sr=1-1

And you've spend $1050, and you have a better sounding system than you could have ever imagined. Get all your cabling from Monoprice.com, and you've effectively spent probably abount $1100 for everything, and you'll have a monster system that will beat out anything you've probably ever listened to.

That pioneer receiver is not an Elite model - it's a standard line one...you could get away with doing the 819 model as well, but the 919 has multiple hook ups for all of your components and would work a lot better.

The Paradigm speakers are 7in tall x 4 in wide x 5 in deep. You can fit them pretty much anywhere.

As in speaker cable?

How big is the room you are using/how long are the wires going to be run?

You can more than likely get away with using 16AWG speaker wire.