5.1 In Wall Speakers + Subwoofer

Well, Monoprice at the bottom, and B&W toward the top-end of price. I had some audiosource that were fine for cheap, and my brother-in-law has some Boston ones that are decent. They are a bit hard to audition, I would suggest 6.5" over 5.5"

To get the most for your money, I would get five of these:
http://www.accessories4less.com/make-a-store/item/BOSHSI275/BOSTON-ACOUSTICS-HSi-275-6.5-LCR-Speaker-Each/1.html

And for a subwoofer, one of these:
http://www.epiksubwoofers.com/legend.html

Well within your price range. The Boston speakers are factory refurbished, but they come with a full warranty and the seller is legitimate and I have purchased numerous refurbished products from them with zero issues.

If you are hesitant to buy refurb, I would consider these as well:
http://www.htd.com/Products/high-definition/HD-W80-in-wall-speakers

They one negative aspect of in-wall speakers is that they often lack bass, hence spending about equal proportions of your budget between speakers and a subwoofer.

The Bostons have only 1 left in stock at this time.
I'm in the same boat with my selection.
I am currently leaning towards the Monoprice 6816 and the Epik Legend.
I am going with a 7.1 setup.
Speakers = $400
Sub = $575

Not a bad setup and I can upgrade the speakers later, if needed, and never feel bad about it.
Also, though probably not needed, I will have the option of adding some wood and caulking inside the cutout to build an impromptu box to direct more sound.
As I said, this most likely will not be the case as I haven't heard of anyone having problems with these speakers.