Hi MCally,
I've been working on a series of articles on this, but am not ready to publish yet. Here are a couple of guidelines though.
Before you do anything you have to plan and budget. How big should the theater be? Is it to watch movies, sports, TV shows, gaming, or some combination? Is the room going to be dedicated to viewing, or will there be other activities going on? Is sound isolation an issue? Do you have kids trying to sleep upstairs? How would you rank performance vs aesthetics of the space. Do you want to hide the speakers? All these things need to be decided early on as they affect every decision along the way. Frankly, equipment selection comes later for a couple of reasons. First, if you buy it early, it will sit in a box and become obsolete while you prepare the space, or worse, you will set it up, start watching, and never complete the space.
A home theater can be anything from a large flat screen with a good sound bar, all the way up to a dedicated movie palace like you see in the magazines. Each has its place, and depends on how you want to use the space. I have two "theaters" in my house. One is a 50" plasma in the family room with a 5.1 surround system and attached source material. We use it for casual TV viewing or whenever many activities are going on around the set. The second is a dedicated home theater with projector, 120" screen, home theater recliners and a dedicated sound system, complete with a large subwoofer. It gets used for serious movie watching, and by the kids for xbox gaming. THat sort of theater is stunning, but nothing goes on in the room except what is happening on the screen.
Hopefully that is a start on where you need to make your first decisions. Feel free to come on back and keep asking questions and showing us progress. I'd love to see some pictures of the space and what you are planning for it.