Projectors all have different throw distances, it is not standard, but for a quality LCD projector like the Panasonic AE4000 or the Epson 8700UB, you will get about a 100" diagonal from about a 10' throw distance (lens to screen). With a room 12' deep, that is really acceptable, and in a dedicated space (dark paint, carpet, ceiling), it is beyond ideal!
The room acoustics are perhaps the biggest fighting points for you, and I would spend some time/money rewiring the room for really good lighting so you can get some lights on while the projector is in use.
The new 3D JVC projectors are likely to be availble to market as well and may be worth your consideration if you want to have some real cinematic fun with the space.
Your budget is good, but will always be a limiting factor. A good projector will be $2,000ish, and a screen can pretty easily be about $1,000 for a quality model. So, that's about half your budget. A good 65" plasma is about $3,500 as well, so you are in about the same budget when you go that route.
That leaves about $3,000 or so for audio, which is decent, but more in line with what I would call mid-grade gear. Not likely appropriate to go with Emotiva Pre-pro/amps at about $1,400 which would leave $1,600 or so for the 7.1 speaker setup. Pretty easy to see how we run out of money so quickly with this hobby.
I would say that good speakers are pretty much 'forever' as is a good screen for a projector. Receivers and projectors are items which likely will need to be upgraded every 5-10 years under normal circumstances. But, a good amplifier for your speakers could last forever, so spending some money there is good.
The room construction shouldn't really take years or anything, but it depends on how much work the space needs, and other than basic planning, I wouldn't worry to much about components right now.
12x12 - dedicated? In my experience a dedicated room always gives the best results, so while smaller than ideal... and square, you still will likely be able to get the best performance from this space.