I managed to construct a relatively large projection theater, by cutting corners, doing a little deal hunting, and making some things on my own. For under $500. Everything I have done can be scaled down for you on home, for either a temporary or permanent installation.
Step 1: Acquiring the Projector
If you have a projector, you can skip this step.
Otherwise, there are a few ways to go about getting an LCD projector for about $300. Personally I got mine from a friend who was selling one, similar to the price of comparable models on ebay.
Another way is to check local computer junk stores, thrift stores, and flea markets.
Be weary of cheap projectors without bulbs, if you are handy (or can wait around for me to write up my instructable on it) you can improvise your own bulb for ~20.
I'm a little too lazy to cite sources but if you are adventurous you can build your own from scratch.
Also do some research to make sure your projector has enough power to fill your selected wall or screen with the ambient light of the room... check manufacturers specs for this.
so $100-$300 for the projector
Step 2: The Screen
You can get away with a crappy projector, but the screen is actually pretty important.
There are 3 options for a screen.
1. Buy a screen, at a store, surplus, flea market, whatever.
2. Make a screen Tyvek Projector Screen. This is a really good instructable, I have one of these for portable reasons.
3. Paint your wall. Obviously not the best solution for everyone but this is a one time setup, and as long as you can paint well you can make a great wall. This site Screen Goo has an extremely good product, and a wealth of information, especially regarding screen color. However it costs an arm and a leg.
My personal alternative was to use the site to figure out the right color, then I took that info to Sherwin Williams and got a flat latex paint and primer in that color. Since I was painting drywall I put on quite a few coats.
Something you want to keep a critical eye on is how evenly you apply the paint. Lines, bubbles, and missed spots will show up later, so make sure to keep some extra paint afterwards for touchups.
Paint/Screen: $50 or less
Step 3: Audio
Without good audio a picture is nothing.
If you want to go the surround sound route, you can go to Wallmart and pickup a cheapo surround sound for about $100, that give you Dolby 5.1, a built in DVD player, a sub, and small speakers.
However for just about the same you can put some hardcore serious sound into your home theater. It will require a bit of legwork and perhaps a bit of soldering iron work.
Make yourself aware of your local 2nd hand shops and flea markets, also check newspaper classifieds for old stuff, and garage sales.
I managed to get a pioneer receiver from the salvation army store for $20. It can put out 2 channels at 120Watts, or 4 channels at 80 watts. This refers to real watts, at 8 Ohms none of this 2, or 4 ohm garbage... this is a legitimately loud system.
As far as speakers go, I was able to get 2 sets for $20 a set. Unfortunately they were sold as is from the thrift store, one had a blown out crossover, various speakers were blown out, so I managed to take and make one functional set.
Furthermore If you have an old hifi stereo system, if would be a great opportunity to integrate it into the system.
Expect to pay between $40 and $100 for sound, although if you want to get really high quality, the sky is the limit, and this instructable is not for you.
Step 4: Putting It All Together.
Cables... not a subject to be taken lightly. A crummy cable (especially run a long distance) can ruin quality. Monster brand cables are great, but your mostly paying for a flashy looking product, you can get the same quality out of store brand cables. Personally I went to a local radio shack as they were going out of business and got a crapload of their cables for 80% off. However buying cables is expensive, and in my case, the cables I needed to run to my projector had to be longer than what was offered at local stores. So another alternative is to make your own cables.
Making your own cables requires and entirely separate instructable. I'm sure they exist, but I am currently in the process of making one myself. If you know what you are doing, its cheap and easy to go to radio shack and buy $10 worth of connectors, and $10 worth of cable and hook it all up.
due to my projectors distance from the controls, I opted to run 1 cable to it and use an external selector box, my projector had audio controls built in, which I opted not to use, partly to save on cables, and partly because I did not trust its quality.
For best quality, S-video is must. I would spend the extra few dollars on it.
As a general rule of thumb the longer your run a cable, the more signal loss you experience, so try to put all your components as close together as possible.
cables $35 to $150
Step 5: Other Considerations
Once you have your project well on its way to completion, there are a couple other things you might want to consider, although they don't necessarily fall into budget, they help to add to the experience.
Throwing this in line with your audio can seriously improve you sound. I managed to buy one off of ebay for $50. I would recommend setting the EQ to fit your room, and for the most part leaving it alone... if you want to tinker around you're best off using whatever EQ your receiver provides you with. This is also a good way to compensate for lousy speakers.... In my case I have a driver in my right channel that rattles at about 80hz and below... So i simply turned down the bass on the right channel. Cheaper than fixing it, and much quicker too.
If you want to get the projector out of the way, you can build a simple shelf like I did, its all 2x4s and wood screws, its pretty self explanatory below. A little crude for in your home tho. You might also want to consider building a box around it, hiding it out of the way, or painting it to look like a cat. (its a little out there but if you can pull it off, good for you)
If your spanning a large area like me, make sure your front and rear speakers are about the same distance from the viewer, otherwise there will be a significant delay in the audio from either set of speakers. Some receivers have time correction, read you manual for more information on this. Also keep in mind your surroundings, you don't want your sound too muffled because there is too much in the room absorbing it, and more importantly you don't want your sound too blatty if you are in a wide open space with only sound reflective surfaces. This is something you'll have to judge for yourself.
The wider the response the better your sound, and therefore your experience will be a better one. when throwing components together haphazardly like I did, be sure to check all of your audio components for their frequency response and be aware of any frequency dropoffs. Remember, the weakest link in this situation will bring your entire system down.
Step 6: Enjoy
Now you have an exceptionally high quality theater for the price, you can sit down naked in your favorite chair, eat KFC from the bucket, and talk on your cell phone as loud as you want while watching whatever: DVD, cable, sattelite, VHS, Nintendo Wii, betamax, DivX.... If it has a standard video out, you can watch it.
However I recommend sharing with your friends, in which case try to keep your pants on.
This was my first instructable, so pardon any mistakes or omissions I might have made.
I hope this is helpful for making or improving your home entertainment system, and I'm more than willing to answer any questions.