Can the 4 speakers in the ceiling work (I realize what sounds good to one is subjective)? Speaker recommendations? My thoughts are to use my existing sub woofer and possibly the center channel speaker.
I think you can probably get away with ceiling speakers as surrounds if you have no choice, but in-wall would be better if it's not too late to change your mind. Look at
Home Theater Direct or
Only Factory Direct for in-wall / in-ceiling speakers.
For the front LCR, I strongly suggest having the builders put banana plug terminals on the wall so you can wall-mount bookshelf speakers, something like this combo:
Ascend Acoustics CBM-170 SE pair with an
HTM-200 SE center channel = $476
heavy duty wall-mount bracket 4-pack -- $33
I've also heard great things about
these modded Pioneers. The only way to get a total price on them is to
email Philharmonic, but I'd imagine it wouldn't be more than $350 shipped for left, center, and right. Wall-mounting them will require
different mount brackets and your center will have to go either on a shelf or on a
center stage bracket attached to the top of your television.
Re-using your existing center channel is not a good idea. Having the center timbre-match with the LR mains is important, and that Sony center probably only matches the other speakers it came with.
Does your $700 budget include the receiver as well?
I think you would be much more pleased with the sound from a solid 3.1 system than a mediocre 7.1. If you insist on all in-wall, in-ceiling, then so be it. Here you go, but you're going against doctor's orders here:
2x
in-ceiling speakers pair -- $114
in-wall center -- $49
in-wall 8" speakers pair -- $100 or
in-wall 6.5" -- $45 if limited by budget or space between studs
a better subwoofer than you have now -- $199. If you're planning to recycle the so-called "subwoofer" bass-module from a home-theater-in-a-box, trust me. You need this.
subwoofer cable -- $15
Smart power strip -- $45 (see "new and used from $39" link; This will be better than the sub's built-in auto-on signal detection. The sub's auto-on can be defeated with a switch on the back.)
Don't expect magic, though. Speakers need an enclosure to resonate and for Q control. In-wall speakers aren't meant for audiophile reproduction. Nevertheless, this ought to sound pretty clean as far as architectural sound systems go, especially if you can opt for the 8" in-wallers.
For the receiver, go for the
Denon AVR-E400. Audyssey room correction and Dynamic EQ wins.
And make sure the builders use at least 16-gauge wiring in the walls and ceiling.