While you will always be able to get better with a bigger budget, having personally just replaced a faulty AV Receiver and some old and a couple of dead speakers for £600 I have a 7.1 set up that I am happy with:
http://www.superfi.co.uk/p-18213-denon-avrx1300w-home-cinema-receiver.aspx
http://www.superfi.co.uk/p-18708-denon-sys-2020-51-speaker-system.aspx
http://www.superfi.co.uk/p-16095-denon-scn4-speakers-pair.aspx
I bought the sys-2020 initially, as was planning on just keeping it to tide me over (and/or just keep the sub), but after some consideration bought 2 sets of the SCN4 speakers, to upgrade the Front left/Right and Centre (as they were the only thing noticeably lacking), and expanded to a 7.1 setup.
Budget was the main issue, but additionally I am space constrained, in that I have no room for Floorstanders, and Bookshelfs could only be a certain depth. In hindsight I should probably have gone for SCN9 speakers, as would be a little bit better for the front/centre, but as I said budget was also a factor.