One kilo-dollar, eh?

OPPO DV-970HD - plays CD, SACD, and DVD audio. Does video, too: 149.00

Audio Engine 5 powered speakers. I've heard them and they sound pretty good: 350.00

The Audio Engines handle two inputs...so, you could connect the CD player and run your iPod through your computer.

It comes with interconnects, I think.

So, that leaves 500.00 for that sound card stuff for your iPod and computer sound sources. Or, you could just start with your current sound card and see how it sounds. It may surprise you.

I've even heard the Audio Engines outdoors, and they could play a tune!

Your best bet is the used market.

Here are some ideas:

Speakers http://cls.audiogon.com/cgi-bin/cls.pl?spkrfull&1177732857

CD Player
http://cls.audiogon.com/cgi-bin/cls.pl?dgtlplay&1177642583

integrated amp:
http://cls.audiogon.com/cgi-bin/cls.pl?intatran&1177714338

That totals about a grand. Be sure to invest some money for interconnects, speaker cables and other ancilliaries.