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.
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Thanks guys. Bday0000: there is a wife, but you are right insofar as I agreed with her insistence. It is a difficult room: open on both narrow ends of the rectangle, with 3 doorways and a dining room area, and no shelves for bookshelf speakers... Short of putting the speakers on stands in the middle of the room, which was what she vetoed (I volunteered to keep them grouped together along the wall when not in use, and that was declined), there are no easy solutions. Which is where the in-walls come in.

Thanks for the suggestions of angled tweeters, and the hope that perhaps Thiel or someone else makes good in-walls.

Maybe I could rephrase the question as this: given the constraints of placement and of having to use fairly small in-walls, what can an audiophile do in order to get the best possible results?

From reading the threads here on Audiogon I get the sense that some people (probably a minority) think that lesser speakers can be brought along by great sources and electronics, and made to really sing. Others may say don't waste the time and money. That's my real question, though I am starting to realize that maybe this just can't be a true listening room!

I appreciate everyone's advice.
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!
Thanks everyone.
It's an apartment I own, and the walls in question are interior to the apartment, so no neighbor issues, luckily!

The main problem is that due to the weird layout of the room, with doorways and so on, there is no real area to do a proper wallmount, only this soffit. The soffit however is only about 8 3/4" tall, which means that, even assuming the speakers would be mounted on their sides, is quite a limiting factor. It certainly means a subwoofer is crucial, as these are essentially tweeters alone, at that size. I think the Magnepans don't fit that area...

I've been looking into B&W, which has some decent sounding in-walls that may fit; paired with a good sub it might just be possible. If anyone knows of a small in or on wall speaker with an positionable tweeter, that would be amazing.