I have had a HT for over 20 years. I've had tube type, DLP, and LCD projectors. Let me offer my own opinion.
1. Decide what you want and how much room you have. To get the "theatre" experience you need a big screen. A front projector is the only way to go in my opinion. A screen of 130" will give you a completely different experience than that of a 60" television.
A 130 inch screen isn't going to fit into a 12' x 12" room either. You need a little viewing distance.
2. Decide on whether you can have controlled lighting (dark room), or whether you want to watch it in daylight or with strong room lights on. That will determine how bright your projector must be. 400-800 lumens are fine for controlled lighting. Over 2000 is necessary for acceptable viewing in bright ambient light.
Plasma, LCD direct view, most rear projection TV's also do a good job in bright light.
If you decide on a large screen and a projector I would recommend the Sanyo PLV-70 as the best performance value right now. It's bright at 2,200 lumens, does true HDTV, has native 16 x 9 panels, has motorized focus/zoom/les shift and keystone correction (important if your ceiling mounting the projector) and its whisper quiet. It also uses a UHP lamp which does not dim over its 2000 hour lifetime. A metal halide lamp, or the other hand, loses half its brightness by the first quarter of its life. If you can spend $4500, nothing can touch this Sanyo for twice the cost. It redefines the capabilities of LCD technology.
DLP projectors do have better black levels, but ones under $15,000 have lower resolution and use a single DLP panel behind a spinning color wheel. For some people, the "color wheel" projectors cause a rainbow affect when objects on the screen move and can cause headaches. A high quality 3 panel DLP 16x9 projector is in the $20,000 range, and i've seen them at trade shows, and the PLV-70 comes damn close.
3. Aspect ratio and office projectors: For a modern HT, only 16 x 9 will do for HDTV and anemographic DVD's (look on your DVD for "enhanced for 16 x 9 televisions" in the feature list. What this means is that the panels that product the image are shaped like the longer wider screen of HDTV. Most older projectors and office projectors use 4 x 3 panels. To view wide aspect moves or HDTV, you must mask out (not use) the top and bottom of the panels, which cuts down on light output and resolution. Most inexpensive office projectors are bright and do text and course graphics fine but do video poorly with bad flesh tones and a grainy screen door effect.
4. Sound. To get into the movie you need lots o' watts. Don't scrimp on the sound system, but you don't have to spend a bundle either. A nice Dolby 5.1 and DTS receiver with at least 100 watts/channel will do. 600 watts of 15" subwoofer does magic. You don't need to buy audiophile speakers for the surrounds unless your listening to serious music, then get more expensive speakers for the front left and right. The center and rear surrounds should be good, but not great speakers. Usually only voice and sound effects come out of them.
I put my HT together on a shoestring and am very satisfied with it. The room size is 25' x 40' My equipment list is:
Sanyo PLV-70 projector: $5100
Sony STR DA50ES receiver 650
JVC CD player, progressive scan 180
Radio Shack Realistic Mach 2 speakers Front L+R 560
Radio Shack L +R+center surrounds 3 speakers 360
Klipsch 15" subwoofer 300W x 2 600
Stuart screen 133" 16 x 9 material only 500
Total investment is around 7950.
I got everything except the speakers online.
I know people who have $40,000 professional HT's installed who have less of a quality experience. You don't have to spend allot of money if you are a careful shopper and can do some light installation yourself.
btw. I also had the Sony 400Q projector. It was the first to come on the market using 16 x 9 panels. At the time I thought it was great... they have come a long way since then!
Check out this web site for great information about HT. It has helped me in my buying choices and offers good support. It is the "NSX Prime" of HT.
http://www.thebigpicturedvd.com/