If you are planning to use a projector as a tv replacement it can be a wee bit of a pain. I was all set on getting one recently but wussed out and decided on a rear-pro TV instead. Just a lot less hassle for "normal" telly. If you hop over to AVForums, you'll see that a lot of the PJ guys have a smaller LCD too, for day to day viewing.
As for screens, a dedicated one does make a difference. As mentioned, you can buy screen paint (Goo) but it's not terribly cheap. You're better off splashing the cash for a decent screen, especially if the PJ is going to be used as your main viewing source.
As for what projector, it kinda depends on what size image you want, and what sources you're hooking up to it. And also what you're doing for the sound side of things.
If you're just wanting as much of a one-box thing as you can, maybe an Optoma Movietime ?
http://www.optoma.co.uk/projectordet...inment&PC=DV10 They have a DVD player onboard and a couple of integrated speakers. Not the all-out performance choice, but certainly the easiest to live with. A friend has one and raves about it
You can sometimes get it in package deals with screens, 5.1 audio systems etc.