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
My frst choice would be a nice pair of full range speakers , Maybe something nice looking like vienna Acoustics etc.

If that is not possible There are many inwalls that are excellent. For example Speakercraft makes expensive in walls that you can get which also have two enclosure options, foam and metal. The enclosures make a huge difference.

Lastly my advise for the best system is to get the best source. A better CD player or Dac if your doing a music server will make a bigger difference that the electronics once they are past a certain point.
A true listening room is very hard to find, indeed.
But, if you are considering in-walls, I highly recommend RBH in-walls. I use them for home theater and friends use them for 2 channel. Very impressive. The bigger 8" woofer has ample bass, but a sub helps.
You can find good buys on eBay.
Good luck and let us know how it works out.
Thanks everyone! The wisdom of the forum makes me think I'd better opt for on-walls as opposed to in-walls, search out a speaker with angled tweeters, get a decent sub, and spend on good sources. No JRDG for me!