I would definitely go for a 1080p projector with a 92-110″ screen. Prices range from $ 1500+. Checkout http://www.projectorcentral.com/home-theater-multimedia-projectors.htm
http://www.avsforum.com/avs-vb/forumdisplay.php?f=68

As for screens, they’re very expensive to purchase a complete screen. The majority of people with a realistic budget buy the screen material (a few hundred online) and build a frame with material from the local Lowes/Home Depot and blackout cloth/felt from Wal Mart/craft store.
http://www.avsforum.com/avs-vb/forumdisplay.php?f=110

A 1080p Blu-Ray player is about $ 500, and will give you an AMAZING picture when matched up to the 1080p projector. Netflix also has Blu-Ray.

So, let’s say you’ve spent $ 2500 on the projector/ screen/ Blu-Ray player, that leaves us $ 2500′ish for audio. And you definitely don’t want to skimp on sound. You want high-definition sound to match that high-definition picture.

Right now, Onkyo makes some of the best receivers on the market, and the 605 can be had from Amazon for $ 389 shipped right now. It has full HDMI 1.3 functionality and decodes the new uncompressed version of Dolby and DTS that Blu-Ray features.
http://www.onkyousa.com/model.cfm?m=TX-SR605&class=Receiver&p=i

A great subwoofer is what really makes the movies come to life. A great subwoofer will hit you in your chest, not be heard by your ears. The best subwoofers for the money are internet direct (ID) companies that cut out the middle man. In fact, ID companies also sell the best speakers for the money. Plan on $ 450+ for a good sub.

Great subwoofer companies:
SVS
http://svsound.com/
HSU
http://www.hsuresearch.com/
ED (ugly, but great value/$ )
http://www.edesignaudio.com/index.php?cPath=2_41

The front three speakers (left/right/center = LRC) are the most important speakers besides the sub. About 80% of dialogue come out of the center, so you definitely want a large one that can faithfully reproduce voices.

Great ID speaker companies:
Aperion Audio:
http://www.aperionaudio.com/home.aspx
Axiom Audio:
http://www.axiomaudio.com/
Ascend Acoustics:
http://www.ascendacoustics.com/
NHT:
http://www.nhthifi.com/2006/ht-s-classicthree.html
PSB:
http://www.psbspeakers.com/
and many others…

Another great option would be to buy pre-owned high-end gear from http://audiogon.com/. You’ll get higher-quality speakers than you would if buying new.

Speaker forum:
http://www.avsforum.com/avs-vb/forumdisplay.php?f=89
Subwoofer forum:
http://www.avsforum.com/avs-vb/forumdisplay.php?f=113

Last thought, if you’re going to treat the room (acoustic panels and the likes), you’ll have to DIY or buy lower end gear.

TV type and screen size –

Since you’re putting this home theater together in a basement, I’ll assume low lighting, even during the day. So, you can go with either a plasma or LCD (or DLP, for that matter). If it were a bright room that gets lots of ambient light, I would recommend against the plasma, because it has a glossy screen and would reflect too much glare.

As far as screen size, there’s a formula for what’s called optimum viewing angle. Basically, this means that there is an optimum viewing distance for a given widescreen TV size and, conversely, an optimum TV screen size for a given viewing distance. The rule of thumb is this: For a 40-inch screen, you should watch it from about 10 feet. For a 50-inch screen, you should watch it from about 20 feet. So, depending on how far back your furniture is from the TV, you’re looking at about a 42- to 46-inch screen. And, a projector would probably be overkill in a room that small.

Surround sound –

Do you want 5.1 sound, 6.1, or 7.1? The “.1″ is the subwoofer in all of these formats. For 5.1, you have left and right front speakers, a front center speaker, and left and right rear speakers. For 6.1, add a rear center channel. For 7.1, you have L/R front, front center, L/R side, and L/R rear.

Personally, I think 6.1 and 7.1 are overkill. I have 5.1 and it sounds great. 6.1 and 7.1 alxo will incur more cost for the speakers (the receivers are more expensive, too. Plus, I have enough issues with running the rear speaker wires for one pair of surround speakers with the 5.1.

Speakers –

I always recommend Klipsch speakers. There are a couple of sites on eBay that are authorized Klipsch dealers. They offer the Klipsch Quintet plus powered subwoofer (SW-10 or SW-12) for about $ 500 and $ 600, respectively (plus shipping, no tax). I have the Quintets and the SW-12 running off a basic Yamaha 5.1 surround sound receiver. They sound great and would really fill up the room in your home theater. The subwoofer has a variable output adjustment, a variable cutoff frequency (60 Hz to 140 Hz), and an output phase control (0 to 180 degrees). So, it can be tuned to match your exact speaker setup and room accoustics.

Also, consider that you have to run speaker wire to the rear surrounds. Since you’re building the theater, I’m assuming you can do a bit of remodeling. If possible, run the speaker wires for the rear speakers through the ceiling and down to a jack where the speakers will be placed. Use thick, stranded speaker wire (12 gauge).

Lighting -

I recommend recessed or track lighting on a dimmer (think of how movie theaters look). Track lighting is nice, because you can get individual spots and point them at the wall for an indirect lighting effect. You might also consider cove lighting, where you build about an 8-inch cove in the ceiling and hide lights inside it, firing upward at the ceiling. You could combine the halogen spot track lights with fluorescent cove lighting for a great effect.

Also, paint the walls a relatively dark color. This minimizes the amount of reflection and glare you’ll get while watching the TV.

There are many more considerations for a home theater. But, that should get you started.