With much the same intentions as you, but for a totally different output, I bought a Dyna Mechatronics 4400C mill, which is actually a CNC bed-style (not knee) machine (see my sig for more info). I paid $1200 for it, but it needed a near total retrofit to bring it up to current standards, which is going to cost around $2500 total and would take around 3 weeks if I could do it full-time.
I did a lot of research before I found this machine and everything was either way to expensive (capabilities vs cost, mostly) or really crappy. I did find that Brother VMCs are seemingly pretty good value in a small in footprint. I have seen them for around your budget or less, they don't seem to be all that popular. They are often described as 'tapping centers', but some of them came with Fanuc controls and are in fact small VMCs. A friend of mine has one and he just loves it.
Sharp also makes a couple of small VMCs that seem to sell for cheap-ish. I also recently saw some really nice, relatively cheap Taiwanese mills from Akira Seiki (http://www.akira-seiki.com/). Their small VMC is $35k new. And I really would not discount some of the higher end benchtop machines from Industrial Hobbies or Tormach, for example.
I think that part of the choice of mill may depend on your ability and willingness to maintain it. For example, Hitachi-Seikis are really cheap right now (relatively speaking) because the company went bust, but parts might not be that easy to come by.
One thing I would suggest is that if you are doing complex parts that are going to be on the mill for a while, you really, really want an enclosure and probably coolant. Also, if you don't already have it, you can easily spend $20k on software alone. A decent CAM package will cost you anywhere from $1k to $10k and CAD is no cheaper. There are two very good cheaper CAD/CAM packages, Alibre and DeskProto, which can help keep the costs sane.
Another thing to be aware of is that your are in sort of a dead zone for CNC machines. Decent used CNCs will sell for closer to $20k unless they are really beat (and if they are you will spend a fortune fixing them) and 'benchtop'-type mills (like the Tormach) can't match the performance of a real VMC. There are a few options out there, but they all require you making an investment of time and/or money (like the 4400C, which is close to what your are looking for).
Then again, with the economy crashing, you may be able to find something really good from a going-out-of-business firesale, although you'll be competing with people buying for Asian end-users... Keep in mind that I am also not a professional machinist, so I could be totally wrong. Just relating what I have found in the sub-$10k market.
HTH,
Chris.
List of parts sources for CNC builders - http://www.CNCsources.net
Dyna Mechtronics 4400C Conversion - CNC bed mill w/toolchanger to Mach3 conversion - http://www.cnczone.com/forums/showthread.php?t=50787