Personally I'd spend as much on the picture that you can afford ... and then through time build it up with a sound system. Projectors these days are both (relativley) inexpensive and can also produce a fantastic picture with a relativley short throw distance. Horizontal lens shift also means you can position the PJ off center if thats going to be an issue.
My own personal recomendation would be the Sanyo Z4 but then again I'm bias as I own one myself (having been through the same kind of conversation you are starting here ) My room is just over 12ft and with windows etc the throw distance is just over 9ft which gives me a (just over) 7ft screen. The nice thing about the Z4 is its upgrade (in terms of room) potential so I'm happy in the knowledge that when I come to start my cinema room 2.0 (currently sitting in 1.5) it will do the job just nicley. The Sanyo can be picked up for a little over £1100. Then again that leaves you with £400 for a speaker system, screen and amp. But then again as I know you myself I know you already have an all-in-one package downstairs so why not spend £1100 on the PJ, around £100-200 on the screen and bring your sound sound package up-staris. There you go cinema room for £1300 and with the reamining £200 you can start saving for a proper amp and set of speakers !
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