Sounds like a cool room you are building there Don. Here is my crack at your questions...
1. I, personally, would go with something darker, but also has some personality when the lights are up. Ideally, you want no outside light, or reflections off of any bright surfaces during a movie. Make sure your paint is flat (so it won't reflect), and won't be distracting when you are using your room. Mid-dark to dark blue, would be nice, but it is totally up to you. You don't want light walls that you can see when the lights are down. You only want to see the screen.
2. Projector is really a personal choice as well. Try to look at them and demo a few if you can. The only thing is, with that large of a screen, you will want to get a projector that is bright enough to handle it and not lose any picture quality. I'm not familiar with the BenQ 8700+, but you can check the AVS forums for information on it.
3. Since you will be watching HDTV on your setup, I'd go 16:9 (native HD aspect ratio) and use masking if you want for any movies that are in a different aspect ratio. I watch alot of HD football games (go Eagles!) and the HD broadcast takes up the whole screen and looks amazing!
4. I ran the following cables from my equipment rack to my projector: component, composet (yello RCA), 15 pin VGA, s-video, and two cat-5e. I only use the component for DVD, and s-video for playstation. I do wish I'd have put in a DVI cable though. BlueJeanscables.com is a great source for cables. Great quality and fast delivery. Also, wire for 7.1, even if you aren't going to use it right away. It will be there WHEN you decide to use it.
5. I plan on buying a screen eventually, but just did a DIY screen for now. I just used a 1/2" sheet of MDF from Home Depot and screwed it to the studs. I painted it with Bher Flat Silverscreen paint, also from Home Depot. ~$30. It looks great. Will a "real" screen look better when I get one? Yes. Will this one work for now while I save money to get one? Yes. This is totally dependent on your budget. If you have the $, then buy a real one now and save yourself some work.
6. Rope lights (Target), riser (lumber from Home Depot), wall sconces (local lighting store) on a dimmer with remote control (home depot), movie posters (internet)... use your imagination! None of these are too much $. All will add to the "theater" experience.
7. The best thing I did was read the WHOLE "What I wish I'd have done..." thread. It was great and gave me TONS of ideas that I would have never thought of by myself.
Good luck with your room. It is a LOT of work, but will be WELL worth it after you are done.