You don't really think a $500 HTiB receiver is going to produce 1000 watts, do you?
In any case, those wattage numbers really don't mean anything.
No doubt in my mind that you would see an improvement with better speakers,....but, as others have suggested, room treatments will also make a large improvement. They will also improve on any speakers purchased later on. Really a win, win as far as home theater goes.
As for tweaking, I'd recommend Avia and a Radio Shack SPL meter at a minimum to start setting up your system. Have you tried adjusting the treble and bass settings at all?