From what you are saying it sounds like you are VERY close - perhaps even closer than might be ideal for recording. When I am that close I think the only choice is omnis. Ideally you'd be better off near the stacks, but I realize that you may not be given a choice of exactly where you want to be, which makes your situation a little bit different.
Church has a new omni, the CA-1, that's $80 - well within your budget, I'd think.
You don't need a preamp. The M10 has a perfectly good preamp. Frankly, though, I'd spend money on mics and get the cheaper deck. The M10 is my deck of choice in that size range, but there are cheaper options (like the DR-07/08).
DR-07 is being discontinued, so Sound Professionals has some really good deals on them (and I'm sure, other retailers as well).
The biggest issue for you in recording, as I'm sure you realize, is height - you still want the mics up as high as you can to avoid phasing if someone walks in front of you, plus muffling caused by people around you. I'm not sure what is a good solution there, but if your chair has anything vertical on it that is above your head and not massively obvious, I would try and mount the mics on that if they can be reasonably concealed.
Also, you mentioned Grails - bands like that are probably going to allow taping, so you don't really need to stealth. Smaller bands, even if they're not "jam bands" will generally allow you to tape if you're just nice enough to ask. Once you have permission, you have a lot more options.