I recently bought a system for a similarly sized room (a little bigger; maybe 12 x 15) on an identical budget (I was looking at 1500 max). I ended up getting a Marantz M-CR603. 60W/channel (into 6 ohm impedance), CD player, and AM/FM/DAB. On the front panel, there is a USB input for an iPod (which bypasses the DAC on the iPod), MP3 player, or USB drive. On the rear panel, there's an ethernet connection (DLNA compliant) so you can stream files from your computer or internet radio. It supports FLAC (many similar devices don't), WAV and a bunch of other formats. I got a small pair of Dynaudio speakers to go with it.
The sound is pretty phenomenal (especially considering the compact size of the system) and more than enough wattage for the space. The M-CR603 was 580 and the speakers were 600. A little over 300 more for a pair of speaker stands, cables, and an ethernet switch. So, all in all, I was very close to my budget (those figures are in euros, incidentally, but should be fairly similar in dollars). Being able to stream my recordings in FLAC/WAV is awesome...