Thats easy.
Jolida 102b (stock not modified) at $650
Insignia Speakers from Best Buy at $79
Both would be brand new rather than buying used. For speaker cables go to Home Depot and pick up 25' of the Carol low voltage lighting cable that is rated for direct burial ($12). This stuff sounds better than the WalMart cables the guys are talking about (IMO). Then for interconnects go for a pair of AR's at $19 (I think they are Acoustic Research). You'd have to figure out something on speaker stands. If you feel like an easy project for you and your brother-in-law, try a pair of my
Stubbie's over at TNT-Audio. They work great and are cheap ($40) to build.
Throw in the Super Pro DAC707 (USB DAC) at $110 and you've just got yourself a
tremendously musical system. All for under $1k. That leaves about $90 to buy some new CD's.

WARNING - After you listen to that little JoLida, you might just be selling off the rest of your gear. Theres been about three or four guys on AC that have bought it on my recommendation and they've all but given up on the upgrade path, especially when you get the factory modified version at $100 more.