I have a TFO Ticr 8wt rod and LOVE it. I use it for all my steelhead fishing and it is perfect for it. Some may say it's too much rod, but I can do some horsing on it rather than put too many fish on the reel. The rod is very stiff and I do use it in the summer time to do some of my bass and panfish fishing in ponds and lakes. I can literally (with a doublehall) throw that line about twice as far as my 5wt rod. I've compared the two before and it's no contest. The best part about TFO is the customer service. I broke the tip off when it was iced over 2 years ago and from the date I mailed it out, to the time I got it back was less than 2 weeks! For $25 you can't ask for better service. I would suggest looking for last years models within the next 2 months. I'm all about the next best thing out, but to save a buck, I'll do what it takes. I got a Battenkill II reel a year ago and saved about $30 off the retail.
You figure $100 on the rod, $100 on the reel, and $50 on the line and you're right at the bottom of your range. If you're stuck between a better rod, or a better reel, I'd go with a better rod. How often do you really put a fish on the reel? I can count on 1 hand how many trout I've put on my reel for my 5wt. Get a nice rod that you're comfortable casting and you can see yourself throwing flies with for 6-8hours without any issues. I easily have well over $1500 spent in my fly fishing equipment and have only been fly fishing for less than 3 years so far. Whatever you end up buying, enjoy it and use it as many times as possible. Also, invite a buddy to come fish with you and teach him on your old setup. I can't ever turn down someone who want's to learn.
Ryan.