Oh, for God's sake - if you are going to 'try out' a projection setup, at least try a REAL projection setup.
It's like saying you are going to buy a LCD setup, then you buy an LED lit Etch-a-Sketch and wonder why it stinks.
Take a SERIOUS step back and do some research and homework on projectors.
1. HD is HD, and projectors are one of the few technologies that actually benefit from 1080p resolution and theater seating distances. If you can't do 1080p, at least consider 720p and a HOME THEATER projector, not a knockoff toy or a business class model. We are talking NATIVE 1080p or 720p, not 1080p 'capable' - because that's marketing BS.
2. Get a HD 16:9 screen so you aren't looking at white borders and overscan like crazy!
Screen:
http://www.htdepot.com/Focupix_Widescreen_Pro_SlowMotion_Manual_Screen_80_p/fm169ax-80ms.htm
Under $100
Projector:
http://www.visualapex.com/Optoma/Projector-Specifications.asp?For-The=HD66&SE=PCentral&KW=HD66
$700
Mount:
http://www.mountdirect.com/Projector_Ceiling_Mount_NPL_Series_p/npl.htm
$45
Total: $850
Yeah, more than you want to spend, but this is an actual HD setup which can use your HD sources and will last you for several years while giving you a true HT experience on the VERY cheap.
I have no issue with you buying toys if you want them, but put them in the play room and let the kids use them. If you want to experience home theater, then start with, at the very least, the cheapest home theater product you can find. Not toys.
Scouring eBay might provide some decent options... This one doesn't look bad for example:
http://cgi.ebay.com/Panasonic-PT-AE900U-LCD-Projector_W0QQitemZ270546512457QQcmdZViewItemQQptZLH_DefaultDomain_0?hash=item3efdd42a49