Home theater setup recommendations?

First if you really want to enlighten them take them to hear some live unamplified music...Then demo a Bose system,followed by a decent surround system and finally a really good 2 channel system...
If you just want to grab them something decent without any fuss a Subwoofer/satellite 5.1(4 satellite speakers,center speaker and powered subwoofer)speaker system from Paradigm Acoustics,Definitive Technology or Atlantic Technology, a good surround receiver from Marantz or Yamaha & a DVD player from Oppo or Yamaha wired up with basic Audioquest wiring will probably blow them away...Spend some time setting everything up along with some light acoustic treatments if you get any echo in the room(walk around clapping hands and you’ll hear it)..A Set Up/Video Calibration DVD is cheap and will allow you to get the best out of the system...
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Yamaha 30#0 amp, MK950 5.1, Oppo 95/105. Great sound. All 2nd hand or runout models. $3k?

Yeah, I think before all of us start answering questions (which happened fast here), we need to know how much money you are looking at investing.  Is it $1,000?  $2,000?  $5,000?   You can probably get a decent setup for any of these amounts, but of course it will be better with more money investment.  Without knowing your budget, it's really a pie in the sky, because suggestions could very easily get up into the "over $10,000 level" and even potentially in the "over $20,000 level".  At the bottom $1,000 level, you are probably looking at some sort of used Yamaha receiver with some entry level speakers (maybe like Elac or similar).

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As far as your first question, you can probably get a way with a 3-channel system.  A Center Channel speaker is probably the most important (in addition to the left/right).  Without a center channel, the dialogue and sound will have an "echo" effect because the left/right speakers have to produce the main dialogue as well as the reverberation from the dialogue. 

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Surround speakers will add some ambience and also add depth and immersion.  If you're looking at budget, these are somewhat important, but no where near as important as a center channel.  So, 3 speakers is absolute minimum.  5 speakers is better.  You don't need to look past that (these 7 speaker, or 11-speaker plus Dolby Atmos systems are just more junk you have to buy, but they do offer more "special effects" type of thing).

WOW...........I thought I was the only one who doesn't sleep!!..........Guess I was wrong. LOL

Haven't hammered out the budget thing with them yet. As previously mentioned, they have NO idea what good sound or gear is like. They think 4 inch  Bose satellites are high end.........Not knocking Bose, per se, they sell a ton of speakers, but not usually to audio people.

I'm thinking start basic, decent HT receiver with solid full or near full range L-R speakers and matching center.  They can build on that later, more speakers, subs, what have you. Keeps the initial system simpler and allows the up front costs to be more about quality, than how many channels can they cram into one room.

I've watched a lot of movies over the years with my 2 channel rig and never missed not having the other 35 speakers at the time, but I do understand that movie sound tracks are meant to be heard multi-channel for the best effect.