I just installed a front projector (the NEC VT540) and I have recent experience with the tradeoffs involved.
Firstly I moved in this direction after I mocked up the size and shape of the 65" diagonal, 16:9 rear projector I liked, and estimated the size of the new Entertainment Center that would have to surround it to hold the speakers and audio gear. The wife had kittens, our rooms are not large, and this would have dominated the family room. On the other hand, the same family room where 65" would have been enough screen, where we view from 78" distance, was clearly too small and laid out wrong for front projection.
On to the front room, reserved for visitors and containing Grandma's antiques. I mocked up the screen size with push pins and string and the projector location (on top of a 7' bookcase) with a box - provisional acceptance. The projector and the two surround speakers are hard to notice on the back wall, the fixed screen sits on a window sill and can be stashed in the garage or the window curtains drawn over it.
It works - but due to lack of ambient light control, can be used only at night. With the screen stashed in the garage and the former TV cabinet containing the DVD player and receiver closed, the effect on room decor is negligible. Furthermore, the install took over three weeks before the projector hushbox was complete, the custom video cables made, and the speakers installed in the room - contrast that to a RPTV that would have seen use the same day delivered.
But I do not regret a bit of the three weeks it took, when I see DVDs in high resolution on a 90" screen.
One final comment - the only way you will get 1600 lines of horizontal resolution is with 9" projection CRTs - they are available in both RPTV and front projectors, but not in the price range you want. The best digital projectors (the DiLAs) are 1365X1024, and to get this amount of horizontal bandwidth from an analog CRT projector requires expensive electronics. I think you should hang around the two projector forums a while, to decide what you can afford.