There are speakers specifically designed to be used against the wall, so for those speakers this set up is not a terrible compromise. I have seen them in different places, but don't recall what brand or model they were. A little homework will reap rewards (sound like a fortune cookie) since, the truth is out there. The budget you mentioned should not be a problem.
Good sound possible on a bookshelf?
Are there any high quality bookshelf speakers whose sound is not significantly degraded when placed on a bookshelf? Because of layout issues, I don't have space in my new living room for floorstanding speakers or monitors on stands (there is a far corner that could take a subwoofer). But I do plan to build a 20-inch deep cabinet surrounding the fireplace and TV that could also house equipment and support speakers. Budget range: from Axioms or Polk LSi9s to Revels. Thanks for all comments.