Man, my heart goes out to you. I did get a divorce- and spent about 623% more money than I should have on music gear immediately afterwards- with zero regrets. So, in the spirit of getting the best sound for the money, a couple ideas:
1) How are you recording this?
You mentioned "for recording purposes" in your original question. If you upgrade your amp and get a better sound but still capture it with a radio shack mic plugged into a 4-track...
On the other hand, upgrading that radioshack mic to an SM57 *might* actually be the best bang for buck. With mic placement you can really get a variety of sounds out of even a crappy amp. I've gotten decent sounds out of a (blush) Peavey
Classic Chorus 212. Sounds like crap in the air, sounds like a real guitar through the mic.
2) Are you using amp distortion or effects boxes?
Its WAY cheaper to get a different distortion pedal than to replace an amp. At your price range, anything except the modeling devices aren't going to give you much variety from the built in distortion. Its either the sound you want or it isn't- pretty risky if you can't plug YOUR guitar into it and play for a few hours before you buy it. And as was mentioned, Crate isn't a bad amp.
3) Playability.
That Ibanez probably isn't that bad a guitar, but if you're not happy your sound it can seem a lot crappier than it is. Sometimes getting the rught sound can make a guitar seem easier to play. Wierd, but I've experienced that many times.
So, anyway, the focus is the sound. I'd suggest seriously looking at the POD and other modeling/effects boxes because they give you all the vairables except the guitar. Sure, its canned amps, speakers, and mics- but it beats the crap out of anything else in its price range.
Take care,
Chris