Hi Mick,
Welcome to the world of home cinema, its amazing how projector technology has progressed since say 3 years ago.
There are a number of people on this forum who use the HS1 so they can give you better advice what the best input to your projector is. I think if you are using a PS2 then the ProV might be worth looking into to get the best picture quality possible?. Do you have the Sony VPL-HS1 input addon? which I believe gives you component inputs ...I think that would be the best connection for best picture quality?.
You can get really good picture quality from LCD projectors by using a DIY greyscreen, you do not have to spend £1000+ on a commercial stewart grey screen to get good results imho. I currently use a piece of 8 foot by 4 foot MDF from B&Q which is painted with Dulux ICESTORM 6 matt paint. Some people use ICESTORM 5 (darker grey) but I now prefer ICESTORM 6 because it leaves the whites in tact but improves the blacks immensely. If you do go the painting route then get a foam roller from homebase, it gives a perfectly smooth finish on the MDF, looks very professional
. I did two coats on my MDF, some people have done 3 but YMMV.
If you do a search for ICESTORM or MDF there are quite a few discussions about home made screens. If you are going to fix the MDF to the wall then I would get 6mm depth as it does warp but wont if its fixed to the wall. 12mm depth MDF at that size is very very heavy, 6mm is much much lighter. Its probably best to pop into your local B&Q and buy some say 60" size MDF as a test and some ICESTORM 6 and ICESTORM 5 paint and cover each side with each colour and compare them with the projector to save time/hassle. MDF costs about 9 quid and the paint about 8 quid or so!.
There are also quite a few people on this forum who went the roller blind route, I believe you can order very large plain grey roller blinds from places like John Lewis which do a good job, I think the blinds cost about £80?. 4:3 projectors are handy if you use a lot of 4:3 material (such as tv viewing/games), however most films are widescreen and to get the best picture quality you will want to get rid of the light spill at the top/bottom of the picture. Black Velvet from places like John Lewis do a great job of getting rid of light spill by having it above/below the 16:9 home made screen.
I personally have a 16:9 home made screen about 24 inches off the ground with black velvet at the bottom and black velvet from the top of the screen to the ceiling, basically it covers the whole wall, so all I see is a 16:9 screen. It looks really good even in the daytime. I use a HTPC to project my movies, I have configured my pc dvd player so that the 16:9 movie is always projected at the bottom of the 4:3 panel as the top 25% of my panel projects on to the black velvet (since its 4:3 aspect ratio projector). This basically makes the projector look like a native 16:9 projector as I have no light spill
If you like to tweak the projectors performance the Sony factory/service menus are very comprehensive (I personally own the CX1 btw). The website below explains some of the projects he did. To get into the factory menu/service menu you just press on the remote
(enter) (enter) (left) (enter), then (up) when it asks 'do you want to enter the factory mode' . From the looks of it Sony bundle the filters with the projectors now judging from this post
http://www.avforums.com/forums/showthread.php?s=&threadid=39338&highlight=factory+AND+menu
http://www.myhometheater.homestead.com/Success_Stories.html his whole website is worth a read as there are many good articles on it, although in particular interest might be
http://www.myhometheater.homestead.com/HTPC.html and
http://www.myhometheater.homestead.com/filters.html and
http://www.myhometheater.homestead.com/files/proj_settings.htm
/James
p.s their are other forums for speaker setup, although I see no problem with your current position of the speaker.