A PJ can work very well for gaming, but there are a few things to consider. First, at NTSC resolutions, if you go very large with the screen you'll start to see scan lines and artifacts. This can get annoying, but if you sit back a ways and keep the screen size reasonable you'll be fine.
Of greater concern is the cost of bulbs. I'd strongly recommend you check on the price of bulbs before you buy. Even though your PJ may only cost $700, it's very possible the bulb could set you back several hundred bucks a pop. Depending upon the service life of the bulb, you could spend as much on bulbs each year as you spent on the PJ. If you're anything like me, you might game for six to ten hours at a time when you get on a big gaming kick. The hours really add up in terms of bulb life. Getting thru, say, Knights of the Old Republic might take 80-100 hours alone.
One last potential pitfall is physical side effects. I get really sick to my stomach playing FPS's on the 100" screen in my HT rig. HALO or Castle Wolfenstein have the whole screen moving which gives me terrible vertigo and motion sickness. I have to play in pretty short stretches to avoid getting very dizzy. My 32" is just on the edge, for me. You might not have such problems, but you might wanna try out a PJ for awhile if you can.
Lastly, I'm not sure what model you're looking at. I know the Epson LCD's are about that cheap, but I'm not hugely impressed by them. Still, it depends upon the PJ. I think solid state PJs represent a huge value and can be good for gaming, so long as you keep the above points in mind.
Good luck with your research!