Okay... You have decided that you are going to take the plunge and build a HTPC home theater. My suggestion is before you purchase your first item, or drive that first nail (If it involves construction) to map out what you want and do lots and lots of research.
The easy question is how to to handle the video. Surprising enough, that is a very small part of the project.
I will try and go in to each of the below list in more details later, but for now, here is a very short check list of what to research.
Room size/shape:
First, take a hard look at the physical space that the home theater will take up. How big is it? Use the link above to "Theater Setup" and plug in some numbers to find out how much space is required, for different size screens. Also keep in mind that any seats that are at too much of an angle from the screen will create an unpleasant viewing experience for those guests. Is there windows involved that a room darkening plan must be made? is there other physical hurdles to deal with?
Lighting:
What type of lighting does your plan allow for, and do you want a fade to black lighting experience. Well planned lighting will enhance the movie experience.
Poorly planned lighting will distract from it.
Sound system:
This of course involves speakers and a receiver. It also involves the number of speakers, and the quality of speakers. My advice is to not cut corners on you sound system. Sound is as important to the viewing experience as the picture is. This is also the time to think about base shakers. Even if they are in phase two, plan on how to wire them at the beginning.
Acoustics:
The last thing you want is echoes bouncing around the wall. There are many methods to deaden your walls, ceiling, and floor. Figure out what best will work for you.
Decor:
Will your theater have a theme? What color should you paint what, and NOT paint what. There is a reason why many home theaters are painted black around the screen. Decor is where you can spend or save big bucks.
The Movie Screen:
Will it be a projector with a screen? if so what is the best projector, and what is the best screen. If not a projector, will it be a flat screen TV? The size of you screen depends on these questions, and also other questions. For example, I was limited to a 101 inch screen because I was using a 4x8 sheet of plywood for the projection screen base, and the 4 foot height, limited my width. (also the fact that my room could not of handled a much larger screen).
Budget:
If you have done any research at all on home theaters, you have ran across sites that have really awesome home theater photos. If money was not an issue, I would have tried to build one of those. But I like most of you had a budget. Be realistic. Building a home theater is not cheap. But you can figure out the costs ahead of time, so you can plan where to and not to spend money.
Seating:
When I first started pricing out home theater seating, I could not believe the prices. There is other options for seating other than the high priced theater seats. If you look at the photos of my home theater, you will see my $160 per chair solution.
Computer Hardware:
Without a computer, there is no HTPC (Home Theater Personal Computer). The trick is to buy the right computer, with the right power, and the right input and output ports. Plan on dumping a few bucks on the HTPC. If high def movies are to be played through the HTPC, than you need the right hardware and power. For some, this also included the right file storage devices.
Computer Software:
This can be as important as the the hardware. For example, my HTPC CPU is old enough that it can not handle any movie over DVD quality. BUT... I found some software that uses the GPU (Graphic Processor chip on the video card) to process the movie, therefore keeping the CPU from being overwhelmed trying to do so. Because my software is using the GPU to process the movie file, I can show High Def movies. You may also need other pieces of software, like a video categoring system, etc.
Wiring:
There are do's and don't to running electrical and speaker wire. Other wise you could end up with speakers that hum. Not a good thing.
And this list goes on, depending on what your plans are.
Right now I still have items sitting in a closet, that I bought for my home theater that I ended up not needing because I did not do a good enough job of planning before I started purchasing. I would suggest that you not do the same if you can help it.