i was in exactly the same situation as you. What I did was that I sold my old Sony DVD player on ebay for 3000 bucks, and bought a new Philips 5996 for Rs. 3990. And I bought the 5000 bucks Philips 5.1 multimedia speakers and hooked them up the analogue outs of the 5996, and in my small listening area it's working out to be a fun "home theate" a 5,000 buck steroid shot for my puny sounding plasma, with the added benefit of proper 5.1 surround. You even have a decent amount of calibration options on the 5996 including speaker levels and speaker delay.
I realise that the Pioneer's picture will exceed that of the Sony or the Philips, but i bought this philips to while away time till i pick up my BD player, and it's not too shabby an upscaler (no better or worse than the Sony NS708).