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I bought an Optoma 720p HD65 about 6 months ago for $600, love it! I watch it at about 120 inches, but it can go to 250 I believe. That + HDMI Input Switcher + PS3 + Surround Sound is all you need. I had chosen it as my first projector based on a ton of solid reviews.
You can go 1080p for under a grand off Amazon (Optoma)
As for the screen, the projector looks great on the wall but I went with some pretty standard $150 ish white screen. If you have too much light, you'll want one of the dark screens that filter light out though.
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