I'm a huge fan of foam, absorbs light and sound. Some good adhesive (and the occasional screw) will keep in it place. The issue is room size:screen size ratio. When you're that close to the walls (ESPECIALLY white walls), it's extremely difficult to block light. I once built a home theater in a 10' X 9' room, and that was with a 110" screen. I was right up against the walls and ceiling like you are. I covered the ceiling, and bottom half of the walls, with a 1/2" black foam, then used dark burgundy fabric on the upper portion of the walls. I got a crazy red glow during certain scenes, but it was MUCH more bearable than having that immense white glow all the time.
The secret is the buy in bulk, not sure where you're located, but there's a place in Oakland, Ca. called Bay City Upholstery, their baycityfoam site looks like it's incomplete so I just use it for basic reference then just call them. I'm sure you have a lot of good upholstery suppliers in your area, just avoid places like "jo ann fabrics'. the only reason I say that is because they cater to the crafter, if you're buying a yard of vinyl, it's a nice quick place to buy from, but when you're buying 100 yards, you're better off saving like 20-40% from a upholstery supplier.
Of course if you're looking to go DIRT cheap, flat black paint.
EDIT: Not sure who told you about that whole not going with black thing, but I'd say you'd be ok.