I would have to agree, that if you have adequate light control in the basement, then going with a front projection setup is (IMO) the only true home theater experience anyone can have. It completely blows people away to see 100"+ screens in someones home... and it can be done easily at that price point.
With a H31 or the SP4805 (H31 seems to be getting slightly better feedback) you want to have a screen that is about .5 times the width of your primary seating distance. That is, if people will be sitting 14 feet from the screen, you would get a 7 foot wide screen (84 inches).
Now, while a really good screen can enhance the viewing experience, if you are up for making a screen, which can be a fun project for some, you can save a TON of money. On a tight budget this really opens up possibilties to invest the money other places. For example, I recently made a 100" fixed frame screen with a nice velvet border for about $200.00 with a neighbor for his home theater. How does it compare to my $4K screen? Well, not bad at all really. Others go with painting their wall for a screen. Either way, it saves you hundreds of dollars towards your receiver, speakers, and a DVD player.
So, with a $1030.00 projector, plus 200 bucks for the DIY screen. That leaves over $1700.00 for the audio stuff.
Pick up a new Samsung HDMI DVD player for ... I think ... $150.00
That leaves just over $1500.00 for the rest. I will stay out of the audio arguement, but I just picked up the Pioneer 1015TX receiver (for same neighbor) for $500.00 and going by that, it would leave $1K for a 5.1 - 7.1 speaker package for you.
I would try to find a few extra bucks on the side for some wiring....