First, if this is primarily a music system then you want a STEREO system, not an AV Surround Sound system.
Next, Ripping to MP3 is fine for an ear-bud MP3/iPod player, especially for use away from home. But if you are serious about music for home listening on a decent Stereo, then you want to rip to FLAC. FLAC, or if you are using iTunes then rip to Apple Lossless. Lossless files are larger but when played back are bit-for-bit identical to the original CD. MP3, even at its best, is lossy compression. A certain amount of the sound simply get thrown away and can't be recovered. For iPod listening that is fine. When you are out in the world, there is a lot of background noise, so you aren't missing much, but in the quiet of your home, MP3, even at their best, are not going to sound great.
Next, you have a choice between speakers, like Studio Monitors, that have Built-In Amps, or you have a choice of separate Amps and Speakers (my preference). Active Studio Monitors have a limited number of inputs. So, if this is limited to your computer, this might be fine. However, if you plan to expand this beyond a simple computer system in the future, a multi-input Stereo Amp is more versatile. But, ultimately, it is your choice.
Next, specifically what equipment do you need? That is CD Player, Turntable, DAC, Amp, and Speakers or what? We need to know specifically what you intend your budget to buy you.
There are very nice amps in the roughly £150 to just a bit over £200. Speakers can run between £100/pr and about £200/pr. You can more than enough budget for that.
Now, if your needs and available space are limited, then certainly you can get some very nice Active Monitors for considerably less than £500/pr.
So, we need to know more about how you will use the system, the size of the room they will be in, and any space limitations you might have.
Here are a couple of suggestions just to give you some sense of what is possible.
£179 to £199 = Yamaha AS300, 60w/ch
[ame=http://www.google.co.uk/search?hl=en&tbm=shop&q=Yamaha+AS300&oq=Yamaha+AS300&gs_l=products-cc.3..0.1511.5398.0.5671.12.6.0.6.6.0.103.512.5j1.6.0...0.0...1ac.1.BLwvcn1Hsjs]Yamaha AS300 - Google Search[/ame]
£279/pr = Wharfedale Diamond 122, 6.5" bass, 40hz
[ame=http://www.google.co.uk/search?hl=en&tbm=shop&q=Wharfedale+Diamond+122&oq=Wharfedale+Diamond+122&gs_l=products-cc.3..0.1558.8245.0.8845.29.14.3.12.12.0.197.1505.9j5.14.0...0.0...1ac.1.mxQN6m4_mVM]Wharfedale Diamond 122 - Google Search[/ame]
In active speakers, consider KRK Rokit 5 or Rokit 6, which have a bit more bass, priced EACH unless otherwise noted -
[ame=http://www.google.co.uk/search?hl=en&tbm=shop&q=KRK+Rokit&oq=KRK+Rokit&gs_l=products-cc.3..0l10.1705.6661.0.7685.13.7.2.4.4.0.88.581.7.7.0...0.0...1ac.1.ceQV7FNlbIc]KRK Rokit - Google Search[/ame]
Mackie MR5 MKII Monitors, price EACH unless otherwise noted -
[ame=http://www.google.co.uk/search?hl=en&tbm=shop&q=Mackie+mr5&oq=Mackie+mr5&gs_l=products-cc.3..0l6.1798.53522.0.54586.18.11.5.2.3.0.237.1206.8j2j1.11.0...0.0...1ac.1.f-J8VwmwbGk]Mackie mr5 - Google Search[/ame]
In a more versatile pair of ultra-high quality computer speakers, consider the Audioengine A5+ -
[ame=http://www.google.co.uk/search?hl=en&tbm=shop&q=audioengine+a5%2B&oq=Audioengine&gs_l=products-cc.1.1.0l10.1342.3258.0.5982.11.6.0.5.5.0.154.637.4j2.6.0...0.0...1ac.1.J4L9iFJZtNk]audioengine a5+ - Google Search[/ame]
Audioengine 5+ - Audioengineusa.com
There are many other choices, but this gives you some idea of what might be possible within your budget.
Steve/bluewizard