Studio monitors are your best rout
A stereo will work for listen to playback and for mixing down your music...but...
It is best to use a pair of studio monitors to listen to playback and to mix your music. Normal consumer stereo equipment colors the sound of whats coming through the speakers. Obviously there are certain mid range frequencies that, when lowered, make music sound a little better and clearer. Consumer gear just does this automatically. There are capacitors wired into your gear that do frequency adjustments. Plus most consumer gear boosts the bass up somewhat. This is good for everyday music listening, but for mixing you want to have your frequency range totally flat so that you will be listening to a pure playback of what you recorded.
If your stereo is boosting or cutting certain frequencies (even when you have the eq or tone knobs set flat) then you will be mixing to counter balance that. Once your final mix down is complete and you master your recording onto a CD, play it in your car stereo, or back through another stereo. You will notice that it will sound way different than your mix did. This is because of that frequency counter balancing that you did through your stereo.
If you have a pair of studio monitors you will avoid any presetting of frequencies. They are designed to give you a flat playback of you music. Then you will be able to tweak to your hearts content.
When you play this back through your stereo, the stereo will do its own little alterations to boost or cut bass and midrange. At this point those alterations will sound acceptable. If they dont it is a good sign that you will want to go back in and make some adjustments.
Alesis makes some affordable studio monitors. Yamaha makes some of the industry standard ones. My favorites that are also (somewhat) affordable are the KRK brand monitors. There are different sizes. The smaller ones are the most affordable and actually have balls too (especially considering how small they are).
http://www.musiciansfriend.com/srs7...6001774944/search/g=home/detail/base_id/52835
That is a link to check those out.
There are a sizes larger than those too. A pair of the smallest ones would run about $500. I would recommend getting powered monitors. Otherwise you have to buy a seperate amp to power your monitors. Plus you may have to get a crossover to accurately divide hi's and low's.
The powered (or bi-amped) monitors take care of splitting up your hi's and low's and sending the appropriate frequencies to the appropriate speaker. Thus, removing the chance that you could set your crossover wrong, or removing the chance that the capacitor in the passive (or non-powered) speakers is not splitting up the frequencies correctly.
Monitors are an investment, but well worth the money if you are serious about recording. Once you have them, you will wonder how you ever got by without them.