I am no theater room expert, by any means, but I do work in a lot of them and have seen a lot. If that "7" number in your explanation is the ceiling height.... then you are going to get a lot of light bouncing off of it from both the projector and the screen. What about darkening it a little (something that would go with the paneling), but not getting too dark. That might help a little, but with a low ceiling and a white color... you are going to see a lot of light up above. That's what I have seen. Since you want the ability to change it back to regular living space... you may not want to go too crazy. My .02 worth.
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