For a computer to do what you said, $1200 is not realistic unless you have money to throw away.
Check print ads or online listings from Fry's, Micro Center and other stores that sell computers. There are always good computers for a lot less than that. Even laptops can be had for a lot less than $1200. If you're talking about peripherals like a printer, scanner, monitor, etc. then that adds to the cost but not enough to reach $1200. Software's a different story but photo editing software almost identical to Photoshop and a full "Office" suite can be downloaded free and they work great.
The computer itself can be had for $400 or less easily. A monitor can be had for $200 or less easily. A printer for $100 or less easily. If I were building the computer, it could be even less expensive, I think. I'm looking at a Micro Center ad right now for a computer loaded with Vista for $250. The same flyer has a refurbished Dell for $200.
To put this even more in perspective, I'm doing the same things you're talking about on one of my computers that's a PIII/866MHz. It doesn't take much to do those things.
So, you've already saved more than enough to buy another better computer in a few years if you think you really need to. You could buy another $700 computer later and still not have spent $1200. If you use the same monitor and printer with the next one you won't be out those costs again.
Check here for some examples. That's for Texas so go back to the home page there and select your location, then click the category links for various deals. The one I've linked to was computer/monitor/printer bundles.
Just send me my consulting fee. I take PayPal (really). 