I can second Neils recommendation for the H56 at just over £2000. It compared favourably on the US forum with the NEC HT1000 which is a highly rated projector, so is definately worth a look.
Whatever you decide - LCD or DLP, you should get a demo and not buy without seeing some in action.
If you are any good at DIY, you can make a half decent fixed screen from wood and white blackout cloth fabric for around £30. I've some pics on my website if youre interested in what the screen can look like.
Yes, I filled in the depth of the wall from the part wall to the front of the chimney breasts with rockwool insulation, then made a frame so that the plasterboard would fit against the chimney breast and make a completely flat wall. That means I have about a foot of insulation between the plasterboard and the party wall.
Use two layers of plasterboard for extra rigidity and bass dampening. When fitting the second layer, make sure the joins of the second layer don't line up with the first. Seal all edges with silicon rubber or similar. Anywhere air can travel, so can sound, so doing this reduces the chance of sound going next door.
On the rear wall, I built a stud wall (ideal a new wall should be 4 x 2) which was not touching the party wall, then filled with 30mm High Density insulation slabs (from Wickes), sealing any gaps with silicon (the brown stuff in the pics). I fitted the first layer of plasterboards sideways because it was easier for me to do that, and wire the sockets. The second layer went up verticaly as normal. I used no more nails between layers for further rigidity.
A flexible wall can act as a bass trap and reduce any in-room bass, so that's what 4x2 is prefered over anything smaller.
The rafters were insulated with just 2ins of insulation as the gap was only 4ins, so I needed 2ins remaining for ventilation. What I didn't do was use anything to reflect the sun from the south facing aspect, so the loft gets 3degrees C warmer than the landing. Using the plasterboard that comes with insulation and reflective film may have been better in my case.
Don't forget the vapor barrier between the plstarboard and the rockwool. I used it in the roof rafters, but not on the pary walls. It's probably prudent to use it everywhere though.
If you look at my pics closely, you should be able to see how I did the above. The ceiling was just ordinary battening wood with a single layer of plasterboard, and insulation on top of that. I used three halogen downlighters, and didn't place anything combustable within 6ins of them for safety reasons.
The floor is made from 4x2, and I further increased the strength by crossbracing with 4x2. It's filled with 8ins of insulation. This waas done before I intended to use the loft as a cinema room. The loft hatch is the weak link, so I'm going to make a drop-in insulation pad to help prevent the sound leaking into the rest of the hous and to next door via hall/landing. It doesn't seem to be a problem though.
I built small side 'walls' by the eves which are a foot tall, and then built larger side walls from the purlins down. You could glue insulation onto the back of those for better insulation and soundproofing, though I haven't done that. I may in the future though. The side areas have access for storage which is useful.
The screen wall is black carpet which helps deaden the sound in that area, and absorb any light overspill. The walls are Kodak 18% (Dulux 6000n) grey which gives a neutral reflected light that doesn't affect the screen colours should it fall back onto it.
The neighbours don't hear a thing as far as I can tell, so the soundprofing seems to be working.