The journey has begun...
Today I started the stereo upgrade. I started by replacing the dash speakers with Infinity Kappa 42.7i ($47 on ebay) speakers. The installation was easy using the bracket from the old speakers, about two hours total. For the time and money this upgrade is hard to beat. The improvement in sound quality is very noticeable. The soundstage is wide and coherent and detail and clarity is vastly improved without being harsh. The bass, although it can't be compared to a dedicted sub, is quite respectable from these little speakers. Tight and controlled. The 40W of the OEM is plenty to drive these speakers with their 93db sensitivity. If you want to upgrade your stereo on a budget this is the way to go.
With that said I've already ordered a pair of Kappa 62.7i for the doors ($60:-), a pair of Kappa 32.7cf for the rear ($39:-) and a 996 6ch amp ($75:-) to get some more power for the rears. Can't wait to get it all installed.