Projectors are an awesome and excellent value way of watching video. You will certainly want DLP, 'cos the pictures look much nicer (usually lower res than comparable LCDs (though have better dot pitch, which makes for a better looking image), but have much nicer, more natural looking, colours - the focusing is less versatile on DLPs too, but that's fine if you plan your setup properly) and you don't get screen burn, which means it is also suitable for gaming. If you get a DLP one, which you should, make sure it has at least a 4x colour wheel - otherwise you'll end up with a rainbow effect around high contrast edges.
As many people have mentioned bulb costs are a big consideration. You'll only get a bulb life of a few thousand hours. Mine is about to die....
Bulbs are very expensive (very close to the same price you are paying for the whole unit, in the UK they're about £200). You will need to buy/fabricate a decent quality screen, but since 100"+ screens cost absurd amounts of money you'd be best off spending some time making a good one properly.
Bear in mind projectors are usually pretty loud, which means turning the volume up on whatever you're watching. You'll also probably end up watching stuff in ECO mode (I find it usually looks best for movies on most projectors) since you add 50% onto your bulb life.