Tips: don\'t skimp on the display. For my budget I went all out and get a 32" wega ($900 is mucho for me). I\'ll put a simple one together for you:
Panasonic RV32k DVD Player - Plays CDR/CDRW/DVDR/MP3/WMA and Matsushita always makes great mpeg2 chipsets- $100
Kenwood HTB-505 Surround Sound Package - I know home theater in a box deals are the devil but you simply have no option with your budget. The receiver has a built-in tuner for radio and does DD/DTS/DPLII at 100wx5 with 100w sub and 5 speakers. - $400
32" Sony Wega or Toshiba FST Pure - Going a little over budget here, but you can get a non-flat TV for $250 less. Your choice. - $750 flat or $500 round.
Just please whatever you do don\'t get a Philips or Sony HTB with the cutesy small speakers. They may look shiny, but they focus more on cosmetics than performance.
edit- ok I re-read your post and it doesn\'t say you are in need of a TV. Assuming you don\'t we have much more to play around with.

I\'d keep the Pana DVD player as your music source and upgrade the receiver to a Denon 1603 (80wx5 - $400)
Speakers, many choices here but with $500 were still doing a budget system.
1)
JBL Northridge series w/
Sony SAWM40 12" Powered 120w Sub
This sub is cheap but has been getting rave reviews for a while on the HT forums. I have JBL Northridges and these are currently the budget speakers of choice. N24\'s for the rear and N26\'s or 28\'s up front.
2)
Energy Take 5.2 with matching 8" sub
Nice but pricey, you may be able to find one at your price point used.
3)
Home Theater Direct Level 2 package
Also popular on the HT forums, great bang per buck. Probably what I\'d get now if I had to start all over with the same budget.
http://www.cheaphometheater.com