There are very good reviews of various projectors with various costs associated at
www.projectorcentral.com This is the resource that I used when deciding upon a projector.
Keep in mind that front projection is ALWAYS adversely affected by light in the room. So, if you don't want the lights off, then put in lights that are very directional - like some track lighting directly over the seating areas that are more spot lights, than unfocussed general light.
I would take a close look at DLP if you have the cash - nothing less than a Mustang II chip makes sense in the home market because you want contast, Contrast, CONTRAST!
A few new projectors are coming out in just a few weeks including the new Sanyo Z3 and the new Panasonic PT-L700. Both of these are 1280x720 LCD displays with 2000:1 contrast ratios, the Panny proving a brighter image though and a 1-2 zoom lens for a lot more mounting distance options.
For a screen - the best would have to be one of the permanently mounted screens from a company like Stewart ($1,000ish +). You can get inexpesnsive screens, then you can use Goo Systems screen paint, and finally a painted wall. The better your screen, the better the image will look.
Now, pixelation and a 'bad' image will occur based on a few things:
1. How close are you sitting to the screen and how big is it? Do NOT sit closer than about 1.5 times the screen width. So, a 92 inch wide screen should not have viewers closer than about 12 feet, preferably further.
2. What are you feeding the screen? If it is just going to be used for DVD & HDTV & Video games, then make sure you are feeding everything via component or better (DVI etc.). If you feed the projector a VHS tape, then it will look like crap, plain and simple. Also, most standard definition TV ie: CNN, will look really piss-poor on it.
Final point is: What is your overall budget? I personally think that screen technology is not a rapidly changing area, the way projector technology is, so if you are tight, then I would go with a GOOD screen, and a cheaper projector. As you are likely to be really happy with your overall system, then you will want to upgrade to a really nice projector in a few years at which point you will already have a nice screen for it.
I spent about $2K on my projector & screen and am happy, but will be upgrading the screen to a $1K+ screen before upgrading the PJ.