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
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.
You nailed it...this is not going to be a perfect listening room. So, make your decisions based on this. Your limitations are going to be your speakers...so dont spend the majority of money there. Get cheap in walls with a cheap sub. Spend your money on good components. If you move in the future...you just going to throw money down the drain with those in walls, whereas the components will be there for a longer time. If you want an audiophile listening experience, get some good headphones and a good heaphone amp as suggested above. Just prepair yourself for the "honey...are you going to sit there with those things and not pay any attention to me" comments. Which, at that point I would remind her about the inwall fiasco.
Consider ceiling speakers with tweeters that can be aimed at the listening position. I am very happy with Klipsch in ceiling speakers. They don't require much power, so a tube or class A SS amp will will be sufficient.
You really need to convince your wife that a subwoofer is a wonderful end table. You can even put a plant on it!