I was using my on-board ac'97 audio with a $20 set of Altec-Lansing 2.1 speakers I bought about 4 years ago. This was an adequate set up for me as I only use my PC for my personal needs and I have a 5.1 surround set up in my living room for family use.
Yesterday I got the upgrade bug but I had a budget of $200 so I set out to see what I could do without ordering my stuff online (I will be busy after this weekend and wanted to enjoy it before the week starts). So, I went to Circuit City and looked over their stock of audio cards. They had everything from $20 Turtle Beach to $300 Creative cards. After looking over my options I went with an $80 Creative Sound Blaster Audigy 4.
My sights now set on speakers I had to keep in mind that I really didn't need 5.1 or 7.1 surround because I don't really sit still when listening to music on my PC, I usually am up and around working and when I game I use headphones. So I looked mainly at 2.1 speaker systems and went with the Creative I-Trigue 3300 2.1 speaker system also for $80.
Total money spent: $160 which is $40 under budget but I am truly happy with the sound I get from my system now. For sound on a tight budget, I think this is as good as it gets. With the $40 left over, my wife bought me a set of Radio Shack Wireless headphones which are also nice sounding. Certainly not the top of the line stuff, but very good sounding none the less.