Making the best of mediocre speakers


I want to get the best system I can, given unfortunate constraints. I'm building a new 2-channel listening system in a new apartment, and my wife insists the speakers in our 17x23 living-room must be in-walls. They fit into a particular lowered soffit, so they'll be installed just above head height. The Sonance Z4s are the best I could find to fit the area; they're OK, but obviously this is a compromise.

So I am planning on a nice subwoofer (which, btw, must also be in-wall), maybe by James, to beef things up. Then about 3K for separates--I am considering a Rowland 102 amp, a Rogue Audio Perseus preamp, and a Cambridge or NAD CD.

My question is, am I wasting money, given the in-wall speakers and placement? Do a nice sub and electronics make up for the speakers? Or should I throw in the towel and just get an Arcam Solo or something?

Many thanks.
price
First of all,I hope you own the apartment,or got permission to do this.In the wall speakers just can't seem to sound anything like normal speakers.And another thing,are there any neighbors behind those walls with the speakers that may not enjoy the same thing your listening to?I hope not.
Another problem,regular drywall will have a tendency to vibrate loose,whether screws or nails are used.I can't imagine what the in wall subs will do.
In wall can be made to work well, according to Floyd Toole, author of a great book called 'Sound Reproduction'. My take on his comments is that an in-wall sub is not going to work. So, try to get the wife to bend on that issue. In the end the fact you are in an apartment with common walls might doom the use of speakers. A great headphone set appears to be the 'final' solution. If that is the case, I would scale back on all the electronics and get a great tube headphone amp.
If it was me, and I was set on in walls at non ideal heights, Id buy the Dayton top model(8 inch woofer/dual tweeter) speakers all around for under $250 pair at partsexpress. I would hit them with a Onkyo NR906, and a SVS sub. The cylinder subs they sell can offer huge bass and fit snuggly in a corner.

The Daytons have soft domes, and kevlar drivers. There easy to install yourself, and the Onkyo NR906 will crush them. Id expect to cross over between 80-120HZ. You may want to buy 2 qty SVS subs so the bass isnt localized at high cross over points.

The Onkyo has auto EQ with auddusy.