There's a few threads on here at almost all times asking about small spaces, and from what I've gathered... the ratios are more important than the actual size. Of course this doesn't take seating into account. The rules of viewing distance vs. screen width are many, and have several different factors, but if you have the resolution on the projector and the image looks good from that distance you should be good to go. There is a potential sacrifice with sound, it's hard to have your speakers far enough from the walls for good sound quality and far enough from each other for good separation, it's also difficult to get great surround channels when you are seated against the wall.
It's all a balancing act, most of the build threads on here have some sort of obstacles they have to overcome, but most of us work with what's available for space and come up with a great place to watch movies regardless.
There is a thread with a list of all the small theater build threads somewhere in this forum and it would be a great place to start your research. Good luck, and have fun.
