Reading this thread, it's seems a little confusing as to what might be in your best interest given your situation. In the current consumer climate, I find the lack of pertinent and consistent information with respect to digital TV frightening. So many people seemed to be confused on this topic. I hope that I can help with clarification, and rebuttals to a few previous posts:
--"They will probably improve your VHS picture somewhat, as most come with a line doubler built in"
The quality of VHS is inferior, always has been, always will be. Even LaserDisc, which is almost two decades old, is superior. The adage "Garbage in, Garbage Out" certainly applies here. Your VHS tapes have a resolution which is only 240 lines. This is half the resolution of DVD and satellite TV (DirectTV or Dish Network--480 lines). A line doubler will not add any detail or substantially improve video quality. This is especially true if your VCR does not have an S-Video output (I'm not referring to SVHS technology here).
--"However, the USA is YEARS behind the forcast deadline for implementing the digital standard."
While there is still a great deal of speculation on this issue, this can is a little misleading. If you have followed HDTV since inception, as I have, you will have read that by 2006 all analog broadcasting is to stop, as the frequency spectrum is to be given back to FCC, and to be sold off to wireless carriers. HDTV is growing in popularity and support. HBO, Showtime, ABC, NBC, PBS, and very soon the Discovery channel are being broadcasted in HDTV. With more Prime Time events broadcast digitally (like the Super Bowl), consumers will realize the benefits of this technology. You can receive HDTV signals through an over-the-air antennae (roof mounted) for free, or through a satellite provider.
--"These DVD's give you only double the resolution of standard TV, but about four times that of VHS. True HDTV is between three and four times as good as standard TV"
As I mentioned previously, standard TV and VHS have the same resolution (240 lines, although some may argue, it is the standard definition of NTSC). This is true if you are watching cable TV, or over the air TV (non HDTV). If you are watching satellite programming (non HDTV), you are watching at DVD quality (480 lines). That said, there is a difference between DTV and HDTV. Some TVs are said to be DTVs, which means they can display digital signals--480 progressive scan (line doubling) or above. HDTV means being able to display at least the lowest (540p) of the 18 proposed ATSC HDTV formats. The two most popular HDTV formats are 1080i (interlaced), or 720p (progressive).
Given that you have a large VHS colletion, I have to assume that most of your films aren't widescreen, it wasn't until just the last few years that widescreen VHS really started to become popular. I have a Runco CRT front projector in my current setup, and a 16:9 widescreen (100"). I can tell you it is extremely annoying and dissatisfying to watch 4:3 programming on this screen.If you have alot of 4:3 material, I would consider getting a nice analog setup. The Sony Trinitron series are the best there is, and they can be had for well within your price range. While they don't get as big as you may like, the picture will blow away even the best of the rear projection analog big screens.
If you've got alot of widescreen material, and are also looking to expand your DVD collection, I would strongly suggest taking a look at an HDTV "ready" projector. While a big three gun CRT might not be suitable in your case (this only applies to about 10% of the home theaters out there), you can find a good LCD or DLP projector for a fantastic price used. When and if Digital TV become a viable format, your projector will be ready to add an HDTV tuner on. Keep in mind that Digital TV tuners, which need to be added to ANY HDTV "ready" TVs to display an HDTV picture can be had for very cheap (around $400). LCD and DLP projectors can display an incredingly convincing picture (for the money), are light, and can be setup by just about anyone. They take up less room than a "big screen" to boot.
As Dlr and jaica so aptly described, analog TVs are becoming obsolete, however, that doesn't mean you won't be able to get programming when HDTV becomes the standard,as manufacturers will HAVE to make what is called a "downconversion" box to display HDTV on an analog set. While you won't get the picture clarity of HDTV, you'll still be able to watch TV.
Whew--that was a long post, I hope I didn't throw too much info out here for you. Just one final note to everyone who is not that familiar with HDTV...once you see HDTV in a properly setup environment, you will never want to watch TV, VHS, or DVD again...it is that good!