The picture quality question it depends on what type of projection.
Rear projection tends to have a fairly poor picture, however if you look at a DLP display you'll be blown away by the comparison. Apart from DLP the other two option would be rear LCD or plasma tv's. Although personally I'd go with the DLP or rear lcd over the plasma just because of concerns over plasma's high burn-in rate.
BTW Exfoliate, if you're in the market for a new TV make sure it has a secure HDMI or DVI port, preferbly HDMI. With the upcoming Blue-ray and HD-DVD standards, the MPAA is pushing for it to only be able to be delivered using a secure digital connection, so a TV with just component inputs will probably be out of luck.