i think each person is different and it is important to understand what she wants by asking (either directly or indirectly). it is only fair as it is something she will be wearing her whole life. we actually went shopping together and identified the ring we liked the best. it may not have been a 'surprise' but she did not know when i bought it or how it was coming, but the fact of the matter is is that if you are at the juncture where you are thinking about it, she has been at that juncture for A LONG time before you so shes expecting it.
anyways, we went with a diamond ring from a nationally respected jeweler. even though it may be more expensive than your maw and paw shop, the quality and craftsmanship is significantly more impressive. we know a number of people that have their rings for the same period of time and have had stones loosen/fall out and have had to have it re-designed and re-fitted. the unfortunate thing when this occurs, if you go to a different jeweler for repairs if you are unimpressed with the first jeweler, that oftentimes voids any service jeweler 1 would be obligated to offer you; hence, perpetuating a series of second handed craftsmanship. the amount of money that i paid could have probably bought a stone 100-250% larger at a smaller shop, but this has been far surpassed in terms of quality and service we have received. i have not regretted the choice at all and she receives compliments on it at pretty much every place we go and that makes her happy which is awesome.
like you mentioned above, there are definitely budgetary constraints, but i was fortunate to be in a position where i could (and had saved) save for a fair amount of time to recoup any additional cost.