I've finally collected the cash to get this 'home theater' thing started, I just need the screen now. And a PS3

My 4.1 setup is in my bedroom, and currently uses a 32" SD widescreen. I've had my mind set on a projector and more specifically on an Optoma HD20 (1080p), which has a short throw lens that produces a big screen from a small distance.

Problem is, I dont have many placement options. If i have it mounted on the rear wall just above the couch, it will project a 74" screen or so. The viewing distance will be the same as the projector lens-screen distance, about 8 feet. Seeing as I'll be watch a lot of SD, at first anyway, would 74 inches be overkill?

I could also go with a 50" plasma, which would be about a foot nearer the viewer. 50" is all I can afford if I go with a plasma.

So the question is, does upscaling really help make SD video acceptable at HD viewing distances on an HD screen, or is it not sufficient to allow such close viewing?
I suppose I could set the projector on a coffee table in front of the couch, but then the screen size would only be a little bigger than that of a 50" plasma.

I'll mostly be SD/HD gaming, watching DVDs and soon Blu and possibly HD tv.
I'd appreciate knowing what you guys think. Any more info just ask me
Thanks!
oh last question, do I need to worry about lip sych? Ill be using tosling to my AV amp (wont accept HDMI)