Home Theater System?

You can do it, and do it well. Buy 7 identical min monitor/ bookshelf speakers each costing no more than $125. And, get a decent Subwoofer for the rest. Allocating the most money for a quality sub will provide the most impact, especially with movies.

checkout the enthusiast packages from Hsu Research, you could get a great 7.1 setup for $1500.

http://www.hsuresearch.com/products/enthusiast2.html

Yes, the HSU is a god buy. Also, SVS has a 5.1 and 7.1 system that is very capable for under $1200.

http://www.svsound.com/products-sys-sbs_black.cfm

There is very little 7.1 program material available. Most of the time those extra two channels are either doing nothing or duplicating the other two surrounds with a Dolby X synthesis mode.

With such budget constraints, why not concentrate on the best quality 5.1 you can get?

I am not sure but I think the new Blu-Ray and HD DVDs are encoded with 7.1. Is that true or do I have my facts screwed up?

No, you don't have your facts screwed up, they are trying to fool you. What they are telling you is that the new Blu-Ray and HD DVD's are technically capable of delivering those tracks. However it amounts to little more than a marketing tool to sell more DVD players and more audio equipment because the format is rather new and very few movies were mixed with those tracks. The player may be 7 track capable but that doesn't mean that any sound was originally mixed to come out of those extra two tracks.

This is only my opinion but within those budget constraints, I would think that more spent on better quality fronts would be money better spent than the little bit of extra separation that you might get every once in a while from the two extra surround channels of 7.1.

Also, check out the low cost 5.1 systems over at AV123. These can be added to to make them 7.1 if you wanted to.

http://www.**********/products_catego...akers&brand=55

The difference between 5.1 and 7.1 is not huge, IMHO. That difference will also depend on the material content and the room.

All of the systems mentioned above are of decent quality and all will sound different from each other. It's impossible to predict which one will sound better to you. Then there is the question of size and esthetics.

See what the companies offer as far as trial offers. I know AV123 offers 100% no-risk home trials on their bookshelf speakers.