I wouldn't recommend a projection TV, I've seen burn in done on PJ TV's (7 hours of me and a friend playing skies of arcadia on the dreamcast) if your a heavy RPG gamer (or if you play games longer than 2 hours and the game has static bars) like my friend was you risk the chance of messing up the screen, if i'm blowing 1000+ I wouldn't even risk it, but to each his/her own. Not trying to discourage you competely, if you take care of your TV, not leaving images for pro-longed periods you should be fine ( the same goes for plasma TV's). I do recommend a LCD Rear Projection TV burn in is pretty non existent. A friend (same one actually) of mine has this TV it's awesome, but expensive. The choice is up to you, read reviews on certain TV's and do a little book work online about how the tv's your interested in handle gaming.
I'd recommend a good 5.1 or 7.1 surround sound system (I have a JVC 5030VBK it's great), eye candy isn't everything sound has to be on par too. I'd recommend a system with a Dolbly Digital function since xbox supports Dobly Digital 5.1, games sound amazing on 5.1.
So what you would need is:
1. An HDTV, what you choose is up to you just do a little re-search and you'll find something you'll like, just do the homework because nothing on earth sucks more than having a 1000$ lemon in your living room.
2. A 5.1/7.1 home theather receiver that has Dobly Digital. Again there's tons of choices so just do a little homework and you'll be fine.
3. Since this if for your xbox, you would need to buy a HD AV Pack, EB sells them for about 20 bucks
HD AV Pack
4. Component Cables to connect to the component hook up on your tv
5. Optical Cable (TosLink Cable) to connect to your receiver for dobly digital 5.1
and in no time you will be sitting infront of your tv like this
Any questions PM, I'm an AV nerd.