Decent audio in terrible room?

This is either a challenging question or a very easy one (the latter response being "use headphones"). I am looking to build a from-scratch system (phono and CD) in a real shit room. It's a tiny library-type space, speakers will inevitably sit on top of a short bookshelf up against the wall. Listening will be from within 5 feet or so. I am a complete novice in tricky situations like these - how do I go about making some sweet, low-power, close-range music?
Oh, and did I mention the limited budget?
Go for high end Headphone system!
or you have just described "Near Field Listening" Check out Cardas Audio's web site about speaker setup.
The cool thing is you can go with a small integrated (save some dollars and provides simplicity).
IMHO, Try a vintage tubed receiver in good to excellant condition, like a refurbished Fisher 500c, mated to a pair of tube friendly speakers like the Triangle Titus. Depending on how well the unit was refurbished you may also need an outboard phono stage. That should answer your problems for underneath $900, or so. This will keep the interconnects, and speaker cables on the inexpensive side, and allow you to play around with different small signal tubes to experiment with the sound (fun). Sound could end up as good as can be expected out of your small room, which has the advantage of not requiring lots of power. The headphone output would be a welcome added plus. Happy Listening.
Headphones are really the way to go, both acoustically and financially. If you go with loudspeakers, I might suggest a listen to the Von Schweikert VR-1s. To keep the peace in my household and to even get a stereo system in a small room, remodelled as a library, I placed these in the bookshelf. Remarkable sound! Very three dimensional with great height and breadth, their placement notwithstanding. I use a Creek 5350SE and have been very happy. Good luck.
Check out Tgrisham's library system, it's perfect for what you're looking to do if within price range. I would suggest a pair of NHT SB-3s or SB-2s with a used integrated and whatever source you prefer. This could be done for less than $1K I believe.
I have a pair of Sennheiser HD-600s but much prefer nearfield listening. Even though the 600s are great sounding and very comfortable, I don't care for the isolated feeling they give me. Good luck.
1. if you go headphones, I love my old Stax Lambda's ($2-300) with an SET amp (I also have Etymotic Research, but I keep those for plane trips)

2. near-field listening can be great (non-earspeaker) if done correctly. You will probably get poorer bass response than a good set of phones, but it's purely a preference thing. I like the suggestions about older lower power tube equipment, but if the budget doesn't allow it, consider some of the old NAD 3 series electronics with the bookshelf of your choice (I like LS 3/5a knockoffs for nearfield, but again, it's a finance and preference thing).

good luck & happy listening,
You might try a studio monitor like the Lipinski. It's expensive but designed to work close to a wall - and for nearfield listening. That's the way I heard it a pro dealer in west LA. Imaging will be compromised and bass limited (probably a good thing in a small room), but you may be surprised at how good it sounds.
I would try some Totem Rainmakers or Von Schweikert VR-1's with a Jolida 302b. Add a Music Hall CD player and turntable and you're set. I've heard both speakers in confined places with that amp and they worked beautifully.

Hmmm... I thought I posted a reply earlier but don't see it now.

Well, for close-range low volume listening with some boundary reinforcement, you might look at single-driver speakers and low power tube amps. Or possibly coaxial speakers.