The question is an interesting one and I was surprised at how little the money could purchase in terms of quality hardware. As such several compromises had to be made in all the equipment recommended.
The TV
The TV was perhaps the most important piece of the setup, and as such the most expensive part. The Toshiba 37WLT66 was chosen because of its large size, value for money, image quality connectivity and stylish looks (although the stand could have been improved visually).
£719.99
DVD Playback
The Sony DVPNS76HS was chosen simply due to its price. A tough choice had to be made between selecting a DVD/ 5.1 setup or a seperate DVD and home theatre system. The latter was chosen to allow full 5.1 playback in both games and movies. The players has good connectivity through HDMI and offers progressive scanning, Divx playback and upscaling of DVDs for HD playback.
£80.99
Audio
Another Sony product was chosen to provide the sound for the home cinema setup. The Sony HTSS1000 has a seperate amp and thus will allow for playback of all your devices through it's 5.1 system providing high fidelity audio to improve your cinema experience.
£199.99
Thanks to andrewfee of sr-388.net for helping to compile this setup!