which is your favorite inexpensive stereo system?

For the person you describe I generally recommend a low-powered NAD or Marantz receiver or integrated and CD player and some small bookshelf speakers like the PSB Alphas/Betas or the small Epos speakers. That's the way I started in the electronics, and for a small room those speakers should do a nice job. Going used might get you slightly better electronics or speakers, but if the person is just starting out I'd suggest they get the system from a dealer so they can hear it and make sure they like the character of the sound (for example, the difference between the PSB and Epos speakers, and all speakers in this price range, will be quite noticeable to even a beginner, more so than the electronics in this price range, and thus it would be good for the person to hear them to see where their personal taste lies).

If it were me, I would go with a vintage Kenwood or Marantz receiver, some advents or mission speakers, and used Jolida or Musical Fidelity CDP, or better yet a technics 1200 turntable.

Staying strictly within the $1000 price range, I would recommend a used pair of Totem Arros @ ~$700 paired with an inexpensive integrated amp such as those mentioned by others (e.g. NAD, classic Marantz 22XX series). I think he/she will appreciate the greater range of the Arros in the long run and will be happy most of the money was spent on them. If your friend can afford just a bit more money for the amp, however, I would strongly recommend the used Blue Circle CS integrated for sale right now. I've heard the Arro paired with the CS and the combination sounds amazing.

My first system was sub-1k, and I used Kef Q1 monitors. I don't know if the quality went down in the meantime, because I now see they cost even less! Worth looking into. Second the NAD integrated, and even their CDP or a Marantz CDP, would round things up nicely with some left for cheap cables, connects, stands.