Finally a Budget!!! 3k

Epson 8350 $1200
Jamestown fixed 120" screen $250
Receiver $400 (Denon, Onkyo, Pioneer, Yamaha all make good ones in this range)
BluRay player $120.
That's $1970, leaving you a bit over $1k for speakers.

I have never heard in walls that sounded as good as towers in the same range.
I stay away from recommending brands as it is such a personal choice. I am a klipsch fan myself (for HT use) but that is a love/hate sort of speaker.
Go for a 5.1 setup for now. Don't skimp on the sub. consider satellite/sub setups.

With a limited budget, the classifieds on this forum can be your friend. For instance, right now you could pick up a barely-used Mitsubishi HC4000 projector for $900 and a 110" Da-Lite screen for $499.

An Onkyo TX-NR609 from Amazon would be another $449. At this price and with this feature set, I would buy new rather than getting a used older model.

A decent pair of tower speakers will set you back a minimum of $700-$800, which would leave you without enough budget for a decent sub. Tower speakers in this price range will probably have a pair of 6.5" woofers that will be physically incapable of producing the lowest 3/4 octave or so. That's what a subwoofer is for.

When you audition speakers again, make sure the stand-mount units are running with a subwoofer.

As for speaker recommendations, I would look seriously at something like the Axiom M22 v3 ($488) or the Axiom M3 v3 ($348), paired with a Hsu VTF-2 Mk3 subwoofer ($519).

Good luck!

Epson 8350 (don't skimp).
Quality subwoofer.
average speakers (replace these later if you think you need to).
No screen (white wall with painted black border) or painted screen.

3K will be your "first theater" and you will upgrade, so buy quality parts that probably won't need upgrading for a while (PJ and subwoofer).

Check out the Hsu bookshelves x 5 - quite a bargain really.

I personally would steer clear of used and refurbs on a projector. There is the bulb issue with everybody giving free replacement bulbs to the first owner. That alone would cost you more than you would save. Also, the Epson has a percentage that have pixel misalignment issues and I would expect that these are the ones that show up often in the used/refurb market.

Just not worth the savings in my mind. I'd much rather shop craigslist on the receiver and speakers where you can inspect them more carefully.

I'd hesitate to buy used, unless the seller is local and you can audition it - I did so, and am very happy with the result. YMMV, no doubt there is some risk to it still.

Maybe something along this route?

$1617
8350 bundle

$1000
Top O the line Onkyo HTIB

$160
Panny Blu Ray

$233 bucks for interconnects and speaker wire.

Just a jumping off point. Probably wont satisfy the HT snobs out there but would more than sufficient to impress most of us commoners.

The biggest issue is the options are unlimited. You'll need to sort out what you want to prioritize the most. Video? Audio? LFE? Whats most important to you? I'd definitely say DONT skimp on your projector...get the one you want, even if you need to cut back else where...theres no upgrading the PJ with out replacing the whole thing. Amps, receivers, speakers, subs and screens all represent much smaller individual investments that can be changed out much easier later on.

That projector/screen package says it is $1,476 now. Even better!

I got to admit. Matthew came up with the best answer here.

Ill be darned it did change...almost a no brainer now. :-)

I would not spend much on a receiver. That PJ package is a great deal, then put most of the money towards your speakers and get a good subwoofer. I would not spend more than $300-350 on a receiver.

Polk Audio has multiple tiers of speakers as well. You could get a decent LCR setup from them and then get a nice sub to pair with them.

Buy a Seaton Submersive and a cheap receiver. Use an existing TV and forget the other 7 speakers for now. Get a $70 blu-ray player. Get a nice comfy recliner. DONE.

Little too much J.D. today?

No, Mathew did not come up with the best answer. Do not spend 1K on a filthy HTIB, get real.

Put your money into a SUBWOOFER that won't "upgrade"! Your speakers in a 3K budget for everything are going to be subpar to par and if you ever get the urge - that will get upgraded.

Bang for your buck are projector and subwoofer, guaranteed.

In my life I try to buy quality items, but that takes time. You cannot do it all at once, and if you do, you're very rich - and don't appreciate it like the rest of us. You will appreciate our advice if you buy quality items and maybe not a full 5.1 setup, shoot for 2.1 or 3.1 right now!

I would spend money on a new Epson 8350 (1100) and an Epik dual legend subwoofers (http://www.epiksubwoofers.com/legend.html) - $900.

That leaves 900 bones. Maybe score an emotiva preprocessor/amp (separates) from audiogon, and buy 2 speakers for now.

I rocked a 2.2 for a couple years without a center channel and surround speakers, it can be done.

Paint the screen wall white and border it with black paint.

-ELmO

+1 on the 2.1 or 3.1. We also had that set up for a long time and it worked out really well.

Also personally I wouldn't spend the money on tower speakers. If you buy a sub, your mains will be crossed over ~80Hz so most of the towers range will be cut off anyway. Buy a good pair of two way book shelf speakers.

Ain't no such thing as too much money, too much LFE or too much JD.

Will you be listening to music much? You mentioned the Def Tech 8020 towers, why? Have you heard them?

I'm going with those who suggest getting the pj that you want, going 2.1 or 3.1, with a $300-$350 receiver. Get a good sub, and be happy. Someone suggested that you have $233 for interconnects and speaker wire. I may be missing something, but I spent closer to $100 for my cabling, maybe less. monoprice.com is your friend. Especially if the room is already wired like you said. You could get away with $50 in cables.

+1 monoprice and bluejeanscables

Best is completely subjective. It depends on what his goals are, not yours. If it were me, I'd probably do what you suggested and spend my money on the PJ and Sub, and live with some place holder LCR's until i could afford better.

I was simply giving him an option no one else had presented him with yet. If he wants simplicity and a full 7.1 HT on budget, my option would be a super clean/easy way to do it.

As far as calling an onkyo HTIB filthy...seriously...? I've heard plenty of Onkyo HTIB's over the years, and yeah they aren't audiophile stuff, but they are great bang for the buck. I honestly dont think he could piece together a complete 7.1 system, (receiver, 7 speakers and a 12" sub) that sounds better for less money.

I said couple hundred for interconnects and wires, but honestly thats just what was left over after the other things i suggested. I didnt mean to make it sound like he would have needed to spend all of it on wires and interconnects...how about...$100 bucks for wires and interconnects $130 for a logitech harmony universal remote.

I also like monoprice. Thats where i got all my stuff too. I needed 50' runs of everything too :-(

A filthy waste of money, unless you think this guy won't ever upgrade. If you're posting on AVS, you're an upgrader. We are guiding him based on experience, but many (including myself) like to make mistakes on our own. I don't want to hear HTIB or Bose ever again on this forum.

-ELmO

Well, I DID warn you that speakers were a religious issue.

Also check newegg for refurbished receivers. Often the yamahas are half price ($250).

Too much? Nah.

What are you...King of AVS...?

Why would you say an HTIB is a waste, unless hes never going to upgrade? Its not like I was trying to sell him a POS combo unit from walmart where all the connections are proprietary...

On the contrary i think an HTIB built around a good receiver (there's nothing wrong with Onkyo receivers) is a great option if you plan on upgrading. He'll be able to swap out speakers at will, while in the mean time enjoying the benefit of having a complete system. With a title like "finally a budget"...id say its safe to assume hes not got cash coming out the wazooh...so who knows when hed be able to upgrade...say he spends all his cash on a decent set of LCR's and then ends up not having the coin to get surrounds for a couple years....? For some, maybe thats fine...maybe he'd be ok with that too....i was simple giving an alternative choice.

Just because you've decided all HTIB's are junk, doesnt make it so...In fact theres a whole HTIB Forum full of people that would disagree with you I'm sure.