I have an idea for a project...not something I'd work on any time soon, but just an idea.

I have several Sega Dreamcasts (I love them!) and they output via VGA at 640x480. I was thinking of the possibility of making a variation of an arcade cabinet, where the player stands right about where the projector is, and an image made about 60".

Does anyone have any reccomendations for a cheap projector (used ~$200) at this resolution?

That's quite cheap for a projector that STILL works.... :( My suggestion to you would be: hit up various auction-based sites...

The problem with building an arcade cabinet from a pj with a 60" screen is that you're so close to the screen you're going to see scan lines even if you used a svga res pj. You might be better off making your own ie lumenlab which utilizes lcd monitors that have vga or a projection panel+overhead

Optoma DV10 will do a 60" diagonal from 6' away. I purchased my second one for $350 with a screen, 20 hours on the bulb. Keep on eye on your local Craigslist.