For a couple hundred more, you could get a Sony HS20 which is an incredible projector ($2899 at most merchants). It's what I'm getting after a lot of research as it doesn't suffer from dust blobs building up on the inside of the lcd's and ruining the picture like the Sanyo Z2, has better blacks, is brighter, and has a better contrast ratio. It has all the inputs you need including DVI, component, etc. etc. It's truly an outstanding projector from what I've read .
Another recommendation that you consider a LT240K. An excellent PJ for the price (around $2k after rebate), with high contrast and high lumen output, making it good even with some ambient light. I like the flexibility of a 4:3 projector since I do watch some non-HD TV, play Xbox, and some of my kids' DVD's are fullscreen.
I've also never heard anyone complain about seeing rainbows on it.
IMO, the issues and tradeoffs between LCD (Z2, 500, HS20) and DLP (240K) and native 16:9 vs 4:3 far outweigh HD/nonHD resolution. Once you've settled on a technology, then the resolution issue can become more prominent. Of course, YMMV.
I'll have to give another vote for the HS20. It throws a very nice, sharp picture. I agree that DLP is great, but my wife and I both can see rainbows with slower speed color wheels. Look at the projector before you buy and you'll be fine.
A forum community dedicated to home theater owners and enthusiasts. Come join the discussion about home audio/video, TVs, projectors, screens, receivers, speakers, projects, DIY’s, product reviews, accessories, classifieds, and more!