This 800x600 projector with no digital HDMI input, no component inputs, and low contrast is something that I would recommend you run from.
I'm not sure what your budget is, but at less than $1,000 there are a number of true HD home theater projectors that will serve you very well and a few hundred more will buy you true versatility within your setup.
Contrast ratio of any home theater projector should exceed 1000:1 at the very least.
You will still need some sort of A/V receiver and speakers no matter what you decide to do.
If your budget is $2,000 you can do a decent HD entry level system with some legwork on your end.