This would fit better in the Basics or Speakers section. This is more for complete theater or media room projects and DIY speakers and subs.
A $500 budget will get you a good to great home theater in a box (HTiB). I just checked out the Onkyo SR-800 system. It looks feature packed and gets good reviews at Amazon. You can keep upping your budget for better receiver features, better speakers, better sub but you have to know where your limit is. Pick a hard budget and stick to it.
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The subwoofer needs to be strong enough to provide enough bass to give the sound some kick so it doesn't seem flat, but at the same time my mom doesn't want it booming and rattling outside of the house. I imagine that means a very small sub could do the job, but as said above I have little knowledge of the specifics.
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"Punch" and "kick" are normally associated with bass in the 50hz region. A good set of tower speakers can do that. You want a sub that is flat and can play as low as your budget allows. Booming and rattling outside the house is dependent on how loud you listen to stuff and the construction of the house. I can barely hear my subs outside the house and I run dual 15's with a little over 2,000w pushing them. And a little sub can cost you well over $3,000. The larger the sub, the more efficient and lower it will play.
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very similar deal with the speakers as the sub. Good sound with nice highs and lows, but they don't really need to be able to blow the roof off. Just strong enough to get some nice volume.
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"Nice volume" is again very subjective. Audition as many systems as possible. Even the ones at the big box stores. Find what type of sound you like. Speakers are very personal because everyone hears slightly different.
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I am guessing an amp/receiver will be needed as well, so whatever you guys think is a good choice.
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Receivers cost between $99 and $9,999 (and higher). A HTiB like the one mentioned above has a lot of features for the price. What are your sources for the TV/Receiver? DVD? Blue-Ray, Cable, Satellite, high def? Do you want your receiver to do the switching? And the biggest, do you want a universal remote? Addional sources and the different inputs of a receiver can become extremely complicated for parents. I use a Harmony 880 to simplify my extremely complicated sytem. My mother-in-law can pick up the remote and work everything perfectly without knowing what equipment needs to be on which setting.
I recommend that you take the time to read some in each forum here. You may want to go with more expensive equipment and buy a piece at a time. Of you may want to save some money via the DIY route. There are hundreds of choices and no one can recommend something that is perfect for you. Only you can determine that.
-Robert