Need help choosing a 5.1 system.

1.  You want towers, a center and small bookshelf speakers for surrounds.
2.  Your statements are very subjective.  I don't have any idea what you enjoy.  Only recently did my subs become satisfactory to me.
3.  All A/V receivers will have digital connections (both optical and coaxial).  What is iPod compatible?  Wouldn't a docking station with line outputs be enough?  Or do you want the receiver remote to control the iPod?  Are you aware that playing overly compressed music on a quality system will sometimes give less than spectacular results.  Your good speakers will highlight the compression artifacts and lack of fidelity and sound like crap.  Just a warning.

$1,000 is going to be tough.  $1,000 or so for the speakers would work much better.  How flexible is your budget?

Go to www.edesignaudio.com and click on their home audio section on the left.  Then look at the different home theater speakers.  Decide what looks good to you.  Then check out their subs.  Finally, click the Package Builder link on the left.  It allows you to build a complete speaker package and save about 15%.  Their prices include shipping and no tax unless you live in Iowa.  Are they the best speakers on the market?  Not even close.  Are they better then most speakers at Best Buy and other big box stores- Yes.  Plus the service is great.  Others will have different suggestions. You just need to look at speaker size and your budget to see what fits for you.

The best thing about their package builder is the ability to go with other configurations besides 5.1.  You can go with a 3.1 system and later add your surrounds.  Quality speakers can last for years, decades and sometimes a lifetime.  Spend the bulk of your money there.  Check out last years receivers.  You can save a bundle with 1 year old technology.  Even check out the used equipment here.  You could save 50% or more off of a new receiver.

Are you any good with woodworking?  I have a great set of plans for speakers that cost about $80 each plus wood and paint.  DIY isn't for everyone but if you have the tools, time and a little knowledge it can be fun, rewarding and a huge cost saver.

If you really want to keep the whole thing around $1000 then you may have to go to bookshelves instead of towers. There are some in-expensive towers, like Bic/TheNerds.com those but I have no idea how good they are. Those who have them seem to like them but we tend to like what we have, don't we?

The thought of starting out with a good stereo system first and adding to it as you go along is always a good one.

Just about any new receiver will satisfy your requirements.

As for which is more important, the sub or the center, I might get thrown off the board for saying this but I think the center is more important. A good sub can really add to the enjoyment of most movies but in the long run a good center (and matching fronts) can make vocals sound so much more natural. And that's what you hear the most, vocals.

But with your budget I'd really consider bookshelves instead of towers and spend the savings on a better center..'er, I mean subwoofer . Maybe I can re-register under a different name  .

Well, the nice thing about Axiom is that they will ship the speakers to you and give you thirty days to audition them in your own home. They pay shipping out. The downside is that if you don't like them and ship them back then the shipping cost is on you. I have to admit I've been tempted to try their M60/E350 home theatre package; although the E500 sounds more flexible when it comes to tuning.

Edited to add:

I'd try to avoid bookshelf speakers for mains. Bookshelf speakers always sound weak to me. To me, you always have to have a sub to supplement them and getting a good match isn't easy. You stated that you are new to the HT hobby, so I would keep it simple for the time being and go with floor standing mains and no sub. To me, subs mean tweaking. I would avoid that until I was sure that I really wanted to get deeper into the hobby. With the interests you listed, I would concentrate on mains and a centre speaker. Those are the three most important speakers. Out of those three speakers, the mains would be where most of my money would go if I was on a limited budget. With proper set up stereo speakers can be made to create a "phantom centre" and most receivers have a setting that also allows a person to create a phantom centre if a person doesn't have an actual centre speaker.

The main reason for buying all three at the same time is to ensure timbre matching, but if cash is limited then the mains are where I would put most of it. Axiom, for example, has a factory outlet store that sells speakers, with small cosmetic blemishes. at a discount. If you are not concerned with cosmetic perfection and are not in a hurry you could pick up a set of m50v2 floor standing speakers for about 700 U.S. Those speakers are supposed to have basically the same sonic characteristics as the m3s you were looking at, but I would bet that the bass response on the m50s would be far better than the bookshelf speakers.

On the other hand, you could take advantage of their 30-day home trial if you wanted to try the m3s out. If you didn't like them the estimated shipping cost back is about 30 bucks U.S for the two speakers, according to their website.
Edited by Edwin-S - 11/16/09 at 9:59pm

Considering that I spent over 3000 dollars for two speakers and a sub almost 15 years ago, I thought 2200-2300 Canadian for an entire package was actually a good value. Goes to show what I know.  

You could get that same set up for 1367 U.S from their factory outler If you are not concerned with absolute cosmetic perfection. There would also be a bit of a wait. I read some comments from guys who ordered through their outlet store. They were concerned the speakers would look like hell, but the guys were commenting that they had to really look for the blemishes. Take that for what it is worth though.