These days, home theaters are more reasonable, but my wife would NEVER let me spend all that money. But the dream has been made a reality, a 100" theater in my basement, for a lot less money than you might think. The Computer
First, you need a PC. You can save a lot of money by not buying the best PC out there. In fact, you can complete the entire project for less than what an extreme top of the line PC costs these days. By using what you have, this project becomes very affordable.
I use a 1.4 Ghz Athlon XP based computer as my system. I have 256MB of RAM, and a 30GB hard drive. This isn't a low end system by any means, but it's not even close to a high end system. PCs with these kind of specifications can be had for less than US$500, and you could build it yourself for much less than that. I usually recommend Dell's Small Business site -- they have deals on fantastic systems from time to time that blow away the competition.
Video Card
If you play games, then it is imperative that you spend a little extra on a good video card. For about US$100, you can get a high-quality NVIDIA GeForce 4 card with at least 64MB of RAM. I currently use that card, and there's no game that doesn't run beautifully on it.
Regardless of whether you play games, try to get a card with a DVI output. This is a digital output. I'll explain why you need this output later in the article.
Sound Card
If this is a theater, you'll need a good sound system, too. If you don't have your own receiver and speaker setup already, you can buy a decent computer based one for less. A good sound card such as the SoundBlaster Audigy line is less than US$100, and you can find inerxpensive good quality speaker systems as well. The minimum configuration is 5.1, which means 5 speakers and 1 subwoofer.
If you already have your own stereo receiver and speakers, like I did, see if you speakers can take SP/DIF input. This is a digital input that you can run straight from your PC. For instance, I have a Zoltrix Nightgale Pro 6 sound card, which cost less than US$50. This card connects to your DVD-ROM drive inside your computer, and also provides an optical SP/DIF output. I connected this optical output to my stereo receiver, and the result is incredible digital sound, straight from the DVD to my receiver.
The Projector
This is the expensive part. But not too expensive... Instead of a fancy video projector, your best bet is to look at computer projectors that are meant for presentations. These are much cheaper, and the newer DLP models provide the same projector technology as those US$5,000 rear-projection television they sell these days. But the kicker is, you can get a DLP projector meant for presentations for less than US$2000.
The reason for this is that projector makers know that they can jack up the price for consumer products. Most people don't know any better. I bought a refurbished InFocus LP350 projector for $1800 from a projector distributor on eBay. You'll want a projector that can display at least XGA resolutions (1024x768), the higher the resolution, the more expensive it will be. I found the 1024x768 to be more than adequate. It's stunning.
Remember the DVI output we wanted on the video card? This is where you'll use it. By getting a projector with a DVI input, you will have digital video straight from the DVD to the projector. Combined with your digital audio, you just CAN"T GET A BETTER PICTURE -- even from commercial home theater systems.
Another factor to look at when buying a projector is the lumens. This measures how bright the projected image will be. The brighter, the better. Look for projectors from solid manufacturers such as InFocus. Check reviews and opinions -- this is the big expenditure, so you want it to be the best you can get.
The Screen
Most home theater type televisions on sale these days range between 40 and 65 inch screens. Your screen will dwarf them all. I have setup my projector system in a smallish basement room, and I was able to buy a 100" screen. It's gargantuan. Best of all, a good screen can be had for less than US$100. If you want to skip the screen, you can even project your movies on a wall with white matte finish!
The Results
All in all, you can create a fantastic home theater for less than US$2500, or even less if you already have a decent computer. Watching DVD movies is no different than being in a local theater, even better actually, because you can drink beer and pause the movie when nature calls.
If you are a video game fan, nothing beats playing games on a screen that fills the room. Driving games and first person shooters become entirely different experiences.
And if you can't get away from the boob-tube, watching TV on a huge screen is a lot of fun. I remember watching election returns on CNN the first night I setup the system. Having a life-size James Carville in your room is scary indeed.
For more information, check out the Home Theater Computer forum or if you have any questions on setting up a home theater. This site was very helpful to me.
Here are some pictures we took of our home theater during constuction:
