Other than using the projector in ambient light, I can promise you that the AE900 has more than enough light output to properly fill a 100" diagonal screen with a bright punchy image that will be easily viewable at 10 feet.
The Z4 is less bright, but fine on 100" screens in theater dark situations.
No projector for home theater is really designed for ambient light usage.
ALL THAT SAID:
If I was NOT planning to upgrade in 2-3 years and wanted a projector that would last me 5-7 years, then I would get a 720p DLP model, like the HD72. There are several 720p models right around $2K that are excellent and ran $10,000+ just a few years ago. DLP projectors hitting sub $5,000 will take at least a few years I imagine. But, they will be there - eventually. But, do you want to miss out?
As for the receiver...
You will want to separately review whatever receiver you are looking to purchase. The Yamaha RX-V2600 doesn't just convert from composite and s-video to component. That process is called TRANSCODING. The RX-V2600 converts from 480i video on any input to 720p or 1080i video. That is true upconversion - called scaling or image processing. I am not sure the HK model you referenced does scaling, it only seems like it does transcoding.
Keep in mind - if you go to HD, you aren't doing it by getting an Oppo DVD player. DVDs are 480i standard def material. They look REALLY good, but they aren't HD. If you go HD it'll be with HD cable, satellite, and/or a HD disc player like HD-DVD or Blu-ray Disc. The HD technologies are just beginning right now, but may grow rapidly in just a couple of years.
As always, the choice is yours, but given the cost difference between the H31 ($700), and the AE900 ($1,400) and the complete versatility in placement along with a 100% jump in resolution, I would take the AE900 in a second. Even if I was planning to upgrade in just a couple of years.
TI telling you that DLP is better is similar to Ford telling you that the Mustang is better. It ain't worth crap.
Reviews of the AE900 and LCD projectors put them all at a very high level that is highly comparible to DLP.