Recs for Small Footprint Audiophile System

With a new house I have replaced all of my very old stereo equipment with good things: Mcintosh integrated amp, Arcam cd player, Tannoy speakers. However, it's all big and I know it aggrevates my wife. We have an upstairs relaxation room that I might move my stereo to, but it's too small for my current equipment. What do you recommend for components for a small audiophile system. The room is about 10-12 feet wide by 6-7 feet deep. I'm looking for great sound with a small footprint. Any thoughts? Thanks! AT

The Linn Classik is much better than most would believe. It is quite musical, so compact and of course very Scottish.
Check out the Merlin VSM-ME, verity audio Parsifel encore or if you can swing them the Piega P10 would be my choice. All are excellent speakers that a person could live with for a very long time and don't take up much floor space.
One of my systems: Mark Levinson 390s (has an analog volume control built in), Pass Aleph 3, Red Rose Music R3 minimonitors, and Sunfire True Subwoofer Mark II (very flexible location options). Alternative speakers to consider include Red Rose Music Rosebuds and Proac 1SCs. If you insist on having FM as a source, swap the Pass for a Magnum Dynalab MD 208 receiver.
I agree with the above about the Merlin speakers. As far as compact systems go...there's Linn, Quad, Cyrus, and there are several more. They're all British-ish. They may be more polite than some US hi-fi, but they all sound pretty good...especially for a second system. They're also easy to find used (especially something that was as popular as Quad or Linn). One of the Linn units is actually an integrated amp/CD player combo (I'm not sure if that's the above-mentioned "Classic" or of it's the "Magik").
A third vote for the Linn Classik, paired with any of the small Linn speakers or, if you can use a floorstander, a pair of Meadowlark Kestrel Hotrods. A less expensive alternative to the Classik is the NAD L-40 and another very sweet option for speakers would be the Soliloquy 5.0.
I have the same sized room (work office). Linn Classik (EAR feet) on a Target TT1 with an Audio Asylum power cord, and ProAc Tablette 2000's on 24" Focus Quad-pillared stands. Speaker wires are QED Silver Anniversary flat silver biwire speaker cables, MIT spades and Linn plugs. Add a pair of Sennheiser HD600's for times when you want to crank it up without disturbing everyone around you. I bought this stuff off AudioGon, total investment in this system is $2400. I'm pretty sure you'd find this set up to your liking and it's pretty hard to beat for the size/price. Jeff
I also add a vote for the Linn Classik. I have the latest version "K", and have had good results mating it with a pair of Epos M12.
A Rega Planet 2000, a Bryston B60 integrated and a pair of small floorstanders like Meadowlark Kestrels and you have a compact and extremely musical system with surprising bass.