Build a TT based set up for $5K

At $5k I might spend as much as $3500 on speakers

What do you suppose those $3500- speakers will sound like with $1500- of electronics, cables, turntable, etc. feeding them? You would only use a fraction of what the speakers are capable of.
The best sound will come from a balanced system. A forward presentation can come from many components, the room size/dimensions or/and the recording.

Well, Zenblaster I suppose those speakers would sound pretty great with the right electronics.

If the speakers are efficient enough for them, I'd look to perhaps a Peachtree Decco or a Rega Brio-R or a Dayens integrated. Cables from Blue Jeans Cable. And then pair that with a used turntable such as a VPI HW-19, a Technics 1200, or an old Rek-o-kut.

The Peachtree, Rega or Dayens can be found for under $1000, and I have seen each of those turntables I mentioned for under $500.

I'd put that set-up against about any other combo of equipment totalling $5000.

Now what speakers up to $3500 is the question...

Any recommendations on speakers that would work well with vinyl? I would mostly be listening to classic rock and some classical. also is it worth it getting a dedicated phono stage or is there an integrated amp that has a phono stage good enough for the $5K system?

You've asked a pretty hard question since we don't know enough about the space where you're planning to use the system. I actually just did this for my sister. She wanted a modest-but-good system that would be a minimum of bother (read: no tubes). The VPI Traveler/Ortofon 2M Black combo is a good idea. I was able to find her a VPI Scout with a different Ortofon for about $1,000. We also got a British brand: LFD integrated amplifier with a built-in phono stage for moving magnet cartridges, which was about $2,700. She added a dock for her iPod which plugged into another input on the LFD. Finally the speakers were a used set of Green Mountain Audio Europa's which were about $900. After adding in wire, and a CD player that I gave her, we ended up at about $4,800, pretty close to where you are looking.

And the system sounds fantastic! The Green Mountain speakers present a very natural sound, great with classical, orchestral music, and rock, although they do not have deep bass. The LFD is a real gem, and totally innocuous. You don't notice all the great things it does, until you compare it to lesser gear. It was obviously crafted by someone (Dr. Bewes) who cares about music.

Frankly you should probably track down local resources, either local audio dealers or a local audiophile group with members who will let you hear their systems. Your taste and ideal sonic profile might lead you to favor horn speakers, or planar speakers, or you might fall in love with little flea-powered single-ended amplifier systems. I think the most important things to note are a) it should be fun and b) getting stuff that works well together is critical to the best outcome. Buying based on reputation or putting together a random list of "recommended" components is a sure path to mediocrity.

Good luck with your search, and have fun!

With respect to the room for the system.... I will be setting it up in the living room. The floor plan is as follows: Living room flows into the kitchen.

The Living room is 16ft X 15ft and Kitchen is 21ft x 15ft.

The Living room has TV @ 12:00, Couch @ 6:00, cabinets and 2 chairs @ 9:00 and the 3:00 side is open to the kitchen. There is no real boundary between the 2 rooms except for a 2 foot wide archway.

The issue is whether I should place speakers facing lengthwise @ 9:00 on either side of the chairs or on either side of the TV @ 12:00.

I don't think I can place them 3 ft from the wall like in dedicated listening rooms. Does this mean I have to go for monitors?