Good Audio System for Living Room

How about a used tube receiver such as an old McIntosh or Fisher? These is easy to deal with if in good condition. Very warm sound and easy on the eyes.

As for CD player, unless are you interested in being able to play DVD, there are tons of great used players here at Audiogon.

As for speakers, there are so many it's hard to know where to start. However, when I think of small and warm, The Vandersteen 1B comes to mind.

These with the Macintosh or Fisher would make bullet proof sound that would be difficult to find fault with, especially for long term listening.

I'm guessing here that since your friend recommended Rega he knows something about your tastes. I listened to some Rega speakers recently & although not a full blown audition, I liked what I heard. Definitely worth a listen.

Here's there product line if you haven't looked yet. http://www.rega.co.uk/index2.htm

I would go with McIntosh SS or tube. There are many used models available on ebay since the company has been around for a long time, and for a range of prices. They made a slim-line setup that is compact. I own two of these SS pieces currently for my living room: C712 pre and MC7100 amp (>100Wpc) - quite a killer combination for the price (about $1300 for both only 5 years old). They push Paradigm Reference 100s which are great for a living room because they don't require huge amounts of space around them to sound good. I have them close to the back wall and they sound as good as when I had them closer to the middle of the room. I love my setup and listen to it all the time - super warm, sweet, detailed, musical, and envelopping.

The Linn Classik offers compact quality, is very good sounding AND has a high WAF as it is one box that does all while not cluttering up the room. Used with tuner model can be found for around $1100. Axiom M3Ti (audioshop.on.ca)in black are quite good with this unit or even the Spendor SP3 for $895 new. By the time you add speaker stands you could be just over 2K and this system will be quite musical.

Ah, the living room problem. Three issues predominate:
1) There isn't room for racks and racks of equipment.
2) Speakers generally have to go closer to the wall than is good for them.
3) Room treatment meets interior decorating, and guess who wins.

For #1, keep it simple--an integrated amp and a one-box CD player (or DVD player, if there's a TV around). Stay away from Class A amps unless you want to use it as a warming tray. Tubes might not be the best choice either, but if you like them go for them.

As for #2, you must take positioning into consideration when you shop for speakers. I'd avoid rear-firing ports unless you can put them at least a few feet from the wall. Some speakers are designed to be more forgiving than others in this regard. I'd give a listen to the PSB line in particular, since they seem to understand better than most the real-world environments in which their products operate.

Room treatments are tricky but not impossible. Something absorptive behind the speakers (drapes, tapestry, etc.), diffusion behind the listeners and at the main reflection points along the sides. Open book cases make fine diffusors. Glass sucks.

Finally, I'd buy speakers before amp, to make sure the latter had enough oomph.