My setup:
1280 x 720p LCD projector with a huge frigging bulb casting a
-=X\/ 17.5 FOOT DIAGONAL \/X=-
picture on our screen-painted living room wall.
Since our living room isn't even 37 feet deep, I think we might be sitting too close to the screen.
This LCD projector replaces an earlier DLP projector we had, and the image quality increased. LCD has become better in recent years, and like any technology DLP CAN be poorly implemented so always give highest consideration to how it actually looks to you. Look at DVDs, TV, dark scenes and bright.
One thing that I believe helps LCD in my case is that with front projectors, the LCD panel is a tiny mirror and very, very hot from the bulb. The response time with LCD is faster at high temperatures. We don't get trails.
We've had this projector for more than 2 years now on the original bulb. Yeah, when it goes it will cost a few hundred. We're cool with that.
We're bachelors so there's noone to complain about the blackout shutters on the windows or the curtain across the kitchen entryway.
We have a Wii-type remote for controlling the mouse on the PC, it's easy and natural.
For movies, living room computer use and games, a 15-foot wide screen is
frigging unbelievable. We play a nuclear war sim called Defcon which, with my buddy pacing back and forth in front of The Big Board anxiously barking orders while bathed in the blue, red, and green light of ICBM tracks across a cold green vectorized map, looks and feels like a scene straight out of War Games or Dr Strangelove.
We also have a head-tracking unit for flight sims and racing that lets you look all around by turning your head slightly. Immersion = awesome.
I love technology. My only issue with this setup is that digital cable and satellite absolutely sucks. Sure we get more channels and a handy guide, but the overcompression on the video makes your multithousand dollar TV look like junk. Seriously, it was better in the old days. I imagine this will get better as bandwidth increases.. nothing will help the quality of the content of the crappy stupid shows and media though.

I generally watch movies and play games only - I watch TV only when I'm visiting people who do.
Broadcast HDTV is excellent.