$1,200 with tires is fairly reasonable. Hit up http://www.discounttiredirect.com/ or similar companies for package pricing. You can probably get a nice set of lower-end Enkeis with tires for that price.
As for the 17" vs. 18" debate... it is all up to you. A 17" wheel is going to lend itself as being lighter than it's 18" counterpart. Some want the performance advantages of a 17" wheel, while others like the cosmetic advantage of an 18" wheel.
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