The living room is the most common place to install the home theater. This can work well or poorly depending on room layout, seating, acoustics etc. Often many performance compromises have to be made due to cosmetic concerns. Can you get the big TV you really want or will it look too odd in the room? Are you able to use the best sounding speakers you can afford or do you have to use very small or in wall speakers due to appearance? Can speakers be placed where they sound best? Can all lights be turned off for movie viewing? What about foot traffic through the room? For these and other many other reasons I recommend using a dedicated home theatre room whenever possible.
I can turn just about any room into a home theatre. An extra bedroom can work very well and you can watch movies with minimal disturbance to the rest of the house. Some people like to wall off part of the basement or garage for their home theater. I have even built a home theatre inside a barn (see pictures).
If you have a very large room and need an image that is larger than the largest affordable Plasma or LCD TVs (about 65″) consider a projector and screen. Good projectors used to be very expensive but prices keep coming down and quality improving. It is now possible to get a projector that approaches the image quality of a good Plasma TV and can project a image 100″ wide or more for around $3,000. Keep in mind that your room needs to be very dark for a projector to look good.
Any comfortable seating can be used for home theater. Furniture stores sell expensive recliners built for home theater that are very comfortable but often cost over $700 each. If your budget is tight or if you want the authentic movie theater look and feel consider getting real movie theater seats. Companies like seatsandchairs.com sell new and used movie theater seats. They buy up used movie theater seats from movie theaters that have gone out of business or replaced their seats. They fix them up and sell them to people for home theater use. I have bought excellent seats this way for as little as $60 each including shipping. New seats are often available for $200 each or less. You will need to figure out how many rows and how many seats in each row before ordering so they can supply the proper parts. Keep in mind that real movie theater seats have to be screwed to the floor and can’t be moved. If you want more than one row it is pretty easy to build risers for the back rows and seats can be staggered so everyone gets excellent sightlines. Used seats can also be found on ebay. Just search “movie theater seats.”