Decent audio in terrible room?

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.

Michael