Reno, Nev., where I live, has two or three more bike shops than it really can support. A friend of mine runs one of them, and he's stayed alive the last few years by focusing on "family bikes"--the ones people really need for the kind of riding they really do, not upselling them to some wannabe racer.
"If you just want to ride around with your kids," he says, "you don't need a $2000 bike." he handles high-end bikes, but he keeps a big stock of cheapies and his staff is always courteous and helpful when people come in and want to know what they can get for $300.
His best seller is a Raleigh comfort bike--actually it looks to me like sort of a cross between a comfort bike and hybrid--that goes for $318. I can't remember the model, but he's sold hundreds of them in the last three years and says he's never had a return. My everyday bike is a Rivedell Atlantis, and I love everything about it, but I test-rode one of his Raleighs the other day, and for the riding I do now, it would be just as good as anything I own for not much more than 1/10 the cost.
The moral of the story is that you don't have to spend a ton of money, but you probably should go to a bike shop and tell them what you're looking for. If they try to sell you a $1200 bike, think about trying another shop.