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What do you guys think of this setup?
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I think you can do better.
If you're thinking polk, check out outpost.com (quickly, because the prices flucuate often). Right now, for ~$400 you could get a CSi30, R30's for fronts, and R15's for rears. Many will probably try to dissuade you from the R series polks, but they'll beat what you're looking at, and I've been very happy with mine. The CSi3 is not a perfect match for the R series, but most polks have a similar sound. I have the R50's matched with a CSi line center and RTi surrounds and they are tonally matched. That would leave about $300 for a receiver and sub...No problem. Look for the Dayton 10" from partsexpress.com and the Onkyo TX-SR502 (might have to go refurbished to keep under budget)...forget the Sony. I bet you'd be pleased with this setup considering the tight budget. Good luck.