In the $500 range I put the following system together and I am very happy with the results and performance out of the box. The system has the ability fill the room with sound and produce good bass when played loud, but it also performs well at lower volumes. Low volume is important to me especially when my daughter has gone to bed. I wouldn't hesitate to buy this setup again if I had to do it over.
refurbished Oknyo 504 receiver - $159 (shoponkyo.com)
Polk R15 (front and surround) - 2 pair @ $50 pair (pick these over the R150s because I wanted to wall mount them. (frys.com)
Polk Csi25 (center)- $70 (frys.com)
Velodyne Vx-10 (sub) - $159 (6ave.com)
Miscellaneous cables - $50 (monoprice.com and lowes)
My total system price including shipping is $558. Next on the list is to get a SPL from radio shack and fine tune the system. I already had a progressive scan DVD player so I didn't need one, but I agree that it would be considered a video component just like the TV.