Seems your room is sufficiently large enough to accommodate a 7.1. Personally I'd stick with a 5.1 using separate AV preamp and a multichannel power amp or a stack of stereo power amps or monoblocks. There's hardly any DVD material out there that have been encoded in 7.1. A few have 6.1 using the DD-EX or DTS-EX formats. And since your budget seems adequate enough, you could audition any of those mid-priced Denon, HK and NAD receivers which are excellent digital procoessors in themselves. Try them out first. Make sure they have pre-outs for each of their channels. That way, should you crave for more power, you can route these preouts to mate with external power amps that are rated at least twice in power.
With regard speakers, your choice would really be a subjective call. I would suggest you audition the speakers together with the amp or receivers you have in mind. Offhand I would say that most commercial soeakers can pair well with any commercial AV recievers and amps ih the entry to mid-price points. Just be guided by the following, not fast rules, but they worked well for me:
(1) Impedance matching is important. 8-ohm speakers for 8-ohm amps. Having the right speakers can achivee the greatest transfer of power from your amp. But this becomes less important with "high-current" receivers and amps that can drive 4 ohm loads continuously.
(2) Most commericial speakers have a sensitivity rating of 88-89db. The higher the sensitivity, the louder it gets for the same impedance and amp power.
(3) Use a subwoofer rated at least 2 times that of the continuous power per channel of your receiver. Bass frequencies in explosions and crashes in movies are supposed to be overwhelming, often exceeding the percieved SPLs of your main channels.
(4) Use front, center and surround speakers from the same series in a model line up. That's the safest you can go for timbre matching.
(5) On the assumption you won't drive the amp and speakers to anywhere near maximum levels, each speaker's rated RMS power should be close to that of your reciever's per channel continuous power rating, + or - 25%.
(6) Check the electric power consumption at the back panel of the amp or receiver. It should at least be 1.5 times that of the claimed continuous power output for all the channels combined.
(7) The ability to drive low impedance loads is the mark of a good amp's ability to supply peak current when called for by speaker loads that can dip well below 4 ohms at certain portions of the frequency spectra. Check the back panel for the speaker impedance mimimum requriement. I would stay away from amps and receivers that require a minimum of 8 ohms. They can easily starve for current demands during peak transients. Also stay clear from amps/recievers with impedance selector switches to drive either 4 or 8 ohms speakers. These are current limiting switches that speak loudly of the amp's inability to drive low impedance loads safely.
(8) Whether you go for 100wpc of 200wpc, just make sure the power rating is CONSERVATIVELY rated. That means the figures are arrived at using ALL Chanels Driven into 8 ohm load at Full Bandwidth. Anything less will be an overstatement of the claimed power that you can never have in real listening conditions. For your particular room size, I'd go for a 200Wpc amp or receiver. You can never go wrong with having the most power for your budget. Better to err on the side of plenty. You can always tone down if need be; but you cannot max the volume from a weak amp and expect to get the SPLs that are pleasing to the ears, much less expect the speakers to live long.
