Learn Intermediate Spanish
At this point, you should be able to express basic needs and wants in both the past and present and know 1000 words or so. Besides continuing with Pimsleur II or Barron's Mastering Spanish II you should also be reading anything you can get your hands on. BBC Mundo is one of the best resources out there because it delivers free daily content and is at an easy enough level for you to reasonably understand armed with a good Spanish dictionary. You should choose dictionaries carefully, however, because while a pocket dictionary will be more than adequate at this point in your studies, you will probably have to shell out for one of the bigger desk versions when you've outgrown it. My favorite "pocket" dictionary is Bantam's Spanish and English Dictionary ($6). It contains about 80,000 words and focuses on Latin American Spanish. This means that if you're planning on visiting Spain, you should probably skip it. I currently can't recommend a good "Castillian" dictionary, although the differences are minor enough that you could wing it with a Latin dictionary. My current favorite desk-reference dictionary is the Harper Collins Unabridged Spanish dictionary ($35). It contains over 770,000 entries and completely covers both Castillian and Latin Spanish. Unless you plan to do professional translation, I don't think you'll need a bigger dictionary. Should you grow tired of reading the news in Spanish (another corporate scandal blah blah) and want to read something a little more literary, I recommend Short Stories in Spanish (New Penguin Parallel Texts) by John R. King and Classic Spanish Stories and Plays by Marcel C. Andrade. I prefer the latter but only because I'm a sucker for the classics in any language. Both will only run you about $10 each and shouldn't be too difficult to read.
A Note on Reading in Spanish
Studies have shown that when you learn a new word from context as opposed to from a dictionary, you learn it up to 5 times faster. Therefore, you should not resort to your dictionary unless absolutely necessary. Read the sentence and try to make the word fit with the other words that you know. If that doesn't work, try fitting it into the context of the entire paragraph. If it comes down to the dictionary, write the word down along with its definition. This way, you can easily come back to words that are giving you trouble and go over them until they become second nature. Make a habit of going over this list of words every night before bed so that next time you won't have to look them up.
A Note on Listening to Spanish
You should also practice listening to the language as much as possible during this stage (and every other stage for that matter). Almost every major city in the U.S. has at least one Spanish-language television and radio station. You should watch and listen as much as you can because learning to understand native speakers at a normal rate of speech is quite a chore and requires a lot of practice. At first you will probably only be able to pick out a few words of every sentence. Then after a few weeks, you will be able to understand the general meaning of the sentence without understanding every word. Finally, if you keep at it, you'll be able to understand almost every word said. The bottom line here is that the more exposure you get, the faster you'll learn and the more you'll remember. Find a few Spanish music CDs you love and listen to them continuously (Buena Vista Social Club is excellent Cuban jazz!). Get engrossed in a Mexican soap opera. Talk to your server at your local Mexican eatery. Every little bit helps.
Practice Makes Perfect
Now that you've got a basic conversational ability, it's time to kick it up a notch with the grammar. There are two exceptional workbooks: Practice Makes Perfect: Spanish Verb Tenses and Practice Makes Perfect: Spanish Pronouns and Prepositions by Dorothy Richmand. You can buy them in a bundle for $17 from Amazon and this is probably the best $17 investment you will ever make (sure beats that tech stock you bought back in '99). I like these 2 books so much because they contain literally hundreds of exercises that require you to generate entire sentences rather than just fill-in-the-blank-with-the-correct-verb-form like most other grammar books. Additionally, each chapter contains 1 or more paragraphs for you to completely translate from English to Spanish. These workbooks are so good that even if you bought only these 2 books and nothing else, you would have a good enough command of the Spanish language to participate in an all-Spanish chat room (although since there is no audio, it is unlikely that you would be able to speak). Another option is Advanced Spanish Grammar by Marcial Prado ($13), which is a continuation of "Practical Spanish Grammar" from the beginners section. The main advantage of this book is that it is written almost completely in Spanish, even the explanations. But don't let the title fool you, it's more intermediate than advanced and after finishing the Practice Makes Perfect series, you should have no trouble understanding it. Some of the exercises are of questionable value and it seems to lack focus, but it's decent for building vocabulary and the fact that it's all in Spanish makes it well-worth the $13 price tag. However, use this in addition to everything else and not instead of. One last book that I found especially helpful is Breaking Out of Beginner's Spanish by Joseph J Keenan ($12). He offers a wealth of information on how to sound more like a native, common slang, and a good overview of the subjunctive. Especially useful is the chapter explaining some alternate meanings you probably don't know for 64 common verbs. It's entertaining enough to be worth a read even if you don't care about learning Spanish. Finally, you might want to get a copy of 501 Spanish Verbs ($10) because everybody else and their brother is. I didn't find it necessary myself, but it would certainly be useful.
At the very least, you should buy the two Practice Makes Perfect books and Barron's Mastering Spanish II for this level if you can't afford Pimsleur. The intermediate learning phase should take 2 or 3 months. After that, it's on to Advanced Spanish.