Looks like I'm leaning towards in-wall, in-ceiling. I spoke with a couple of vendors and it sounds like everything comes down to budget and compromise. So, with around $700- $800 I can get the following 5.1 set up with an EnergyM8 or likewise sub.: Monoprice, Yamaha NS-IW series, Polk RC Series or Infinity CS series. I realize it's personal preference and hearing the speakers is better than reading specs, so I'm just looking for opinions on what others have used and liked or disliked. On paper the Infinity speakers look like they may be the best choice, but again it's hard to tell based on specs. Thanks for any insight or opinions.
If you are still reading, the room is 12x24 with an 8ft recessed ceiling. However the area for the 'theater' is 12 x 12 with an open wall towards the rest of the room on the left of the television and center channel. The wall where the fronts will go is an inside wall with 2x6 construction which I will put insulation into. The ceiling will also have insulation in the joists, I'll most likely create some type of mounting support for the speakers so they aren't being supported by the ceiling tile.