I am glad that you have asked that. I am getting ready to redo my home theater as well.
And if you are counting the viewing device also, I may have started already. When I put together my last home theater, sound quality (for movies and TV shows that is) was paramount for me and at the time, there weren't any solutions available for small spaces. So I went with what was out there at the time. As it turned out, I did put together quite a good system. But at the same time, the aethetics of the whole scheme left a lot to be desired. I mean, at the time, I was still using a Direct-View CRT TV (see below) and I had speakers scattered all over the room (and their wiring that was associated with them). The sound quality was very good for a system of that scope. But it was a space hog too. And it was after I gotten my Plasma TV this past year that I finally planned to start doing something about it. And thus for, the upgrading is going to be underway starting next month. What I am looking to do is maintain at least 95% (or more) of the sound quality that I have become accustomed to using my present system, while at the same time, I am maximize my precious space and get some of my space back. So as you can imagine, speaker packages are out, as are costly and space hogging separates. My next system will consist of a two piece speaker system (a surround bar speaker system and a subwoofer).
My systems are listed below.
I am going from this:
Television/Monitor: Panasonic CT-27SF37 (27" Direct-View Set w/2 Tuner P-I-P..... Purchased in 2000)
DVD Player: Denon DVD-2910 Universal Player (Purchased in 2005)
DVD Player/Recorder: Toshiba RD-XS34 Hard Disk DVD Recorder (Purchased in 2005)
Speaker System: KEF 2005.2 Speaker System Package (Purchased in 2005)
Headphones: Sennheiser HD-580 (Purchased in 2000)
Audio/Video Receiver: Yamaha RX-V1600 Audio/Video Receiver (Purchased in 2004)
Television/Monitor: Panasonic TH-42PZ77U Plasma TV (Purchased in December 2007...... I absolutely love it)
DVD Player: Denon DVD-2910 (Will retain from old system, but may supplement with or replace with a Blu-Ray Player later on this year)
DVD Recorder: Toshiba RD-XS34 DVD Recorder (Retained from old system)
Headphones: Sennheiser HD-580 Headphones (Retained from old system)
Speaker System: Polk Audio SurroundBar
Powered Subwoofer: Polk Audio DSW-PRO-400 Powered Subwoofer
Audio/Video Receiver: Harman/Kardon AVR-354 Audio/Video Receiver (Not available until mid-late June)
But anyway, this is what I propose to do for my next system, and what is listed above is how I plan to go about it.
Here's to downsizing in 2008-09......