You want a tone-matched set of speakers all around to help create the 'surround' illusion.
While in-walls are sexy - I'd recommend getting a professional in to install them properly.
External speakers have a lot more flexibility.
B&W is a well-respected speaker line. Check out Anthony Gallo speakers (
Home Theater Speakers | Gallo Stereo Speakers) These speakers have won praise from magazines and are on some recommended lists (unlike Bose).
With small speakers - you need a subwoofer because small speakers or in-walls dont do bass real well. Dont let this put you off.