I don't see why not. IMO, I think 7.1 is a bit overrated and that with good speakers a 5.1 is more than anyone would really ever need.
If you buy good speakers, that image well (hope I used the right term there) and have a wide sound stage, then they will fill the room with sound.
This goes back to what lsiberian said about getting good front speakers and a good subwoofer. Most of the noises you hear from home theater use would be coming from the front 3 speakers anyways and if those are good, the speakers should just fade into the background and you should forget they are even there all the while being enveloped by the sounds of the movie/tv show/whatever.
I got to audition some high end B&W speakers not too long ago and it was one of the first times I've heard high end speakers and I can tell you that if the speakers are great, and the content isn't half bad then you will hear sounds coming from the speakers that seem to be above, behind, to the sides, and in front of them.
All in all, I think you should save the extra $70 and not go with a 7.1 system and put every last penny you can muster from your budget into the sub and great fronts. Just MO.