Ignoring the lousy quality of the W1000 with a 2x color wheel and mediocre image quality, the projector is rated to deliver about 150" of screen size with a 1.0 gain screen.
http://www.projectorcentral.com/BenQ-W1000-projection-calculator-pro.htm
For a cheap DIY screen, then paint is great, but wall preparation and maintenance can be a significant cost. Very significant! I would never recommend that route, but while the results are good, walls tend not to be truly smooth and any 'house settles' issues can be catastrophic.
Blackout cloth DIY screens are one of my favorites because you can build the screen yourself for around $200 for a PROPER screen. You can go cheaper, but you can actually have an excellent one which you will be happy with for years for that much money. No 2x4s, but poplar 1x3s with proper reinforcement and heavyweight blackout cloth from your local Joann's Fabric store. Add to that a TRUE velvet border wrapped around 3-4" baseboards and steel reinforcement for all joints for long lifespan without flex and bowing.
I'm not sure you are quite on the page you may need to be with respect to your own setup. You've set a lot of expectations and put a dime store budget to go along with it. I've seen results people have been satisfied with this, but typically they are very unhappy with their final setup.
The general rule is that you want 15 ACTUAL lumens per square foot of screen space after calibration, in a properly painted room. An out of the box projector can see a 20% falloff in light output in the first 100 hours, and as much as 50% at 1,000 hours. You also typically want to 'emulate' the theater, which means for center of theater viewing, you want a screen that is .66x your seating distance in width. At 15' a 120" wide screen is appropriate. Some people just 'try to fill the wall' with as much as possible, and they end up feeling like they are sitting in the front row of the theater, which isn't fun for them.
Can you do 160" or smaller? Yes, I think you can.
Should you? I'm not at all sure. I would buy the projector and set it up and see if that's really the size you want and if you are happy with the image before I started investing money into a painting job for the room and a commitment to something that large.