I recently got a projector for this very purpose. I'll give you a quick rundown:
Pros
The screen is as big as you make it. You can zoom it in for a tight, 42" display, or take it back out and make it 100" or more, depending on the size of your room. This allows you to sit on your chair and comfortably use a desktop on it, with bluetooth keyboards, etc. A 42" LCD is big for movies, but when using as a desktop, you really have to move up, and that makes setting it up somewhat weird. If you get a mid-range one, you can get 720p, which is 1280x720 - you can usually hack computer resolutions to make this work at native resolution. It's a bit shorter than the usual x768, but a beauty to use from the sofa.
Cons
The biggest drawback is ambient light. During the daytime, unless you really make an effort to black out your room, the image will not be good. During night, it's fantastic. You might also need to mount a screen to help out - putting an image up on a wall is not always going to give you a good image. Mounting and placing may be a problem, given that you need to find a bookshelf or ceiling mount to make it work. I found a cheap solution at IKEA to take care of my needs, but it may not be for everyone. Also, your entire setup needs to be changed; i.e. the components need to be close to the projector in the back of your room. This may pose a challenge.
Models
There are pretty much two types of projectors to look at: those with 4:3 screen ratios, and those with 16:9. If your focus is entertainment, I'd look seriously at at the 16:9; otherwise, computer displays work on 4:3 and I'd stick with that if that is your predominent mode. Even so, you can get a 16:9 projector and throw up a desktop like I do.
There are two models that provide pretty decent resolution for the price. I have a Panasonic PE-900U (around $1400 after rebate) and the InFocus SP 5000 is apparently also pretty decent (around $900 after rebate)
Comments
I use mine for PS2, DVD, and my future Mac mini (I'm using an old G4 tower now). I'm able to type and answer e-mails at a comfortable distance, use the computer has an iTunes jukebox and switch to PS2 or DVDs pretty easily. It'll also work at the high-resolution 720p with an Xbox360, which means you're seeing all the details (maximum) that the console provides.
Overall, it's a bit pricy, but I think it offers a lot of versatility versus a plasma or LCD display. And for the screen-to-price ratio, nothing beats it.
