(FORTUNE Small Business) – Ah, the good old days. A slice of pizza was a nickel, a movie was a quarter, and the trickiest decision when choosing a television set was whether to get color or black and white. I typically don't buy the whole "it was a simpler time" thing, but in outfitting a home theater, it's hard not to become nostalgic when facing half-a-dozen competing television technologies and at least as many audio formats, not to mention myriad ways to view and record movies and television shows. Don't get me started on the plethora of accessories and extras, and that's not even including frozen TV dinners.

Although the experience of plowing through all the acronyms and abbreviations can be frustrating-- if I didn't have a shaved head, I would have pulled out all my hair when I recently set up my own rig--it's worth it when it's done. While not everyone will want his very own screening room, it's now possible to have movie-theater-quality sound and a better-than-theater-quality picture in your home without having to take out a second mortgage. Luckily, with so many options, unless you buy stuff labeled "Soni" off the back of a truck, it's hard to end up with a truly lousy product. And that means a home theater can be something you spend as much or as little for as you like: Decent home-theater-in-a-box products start at $400, but you can spend as much as $100,000 if your nouveau riche heart desires. The system I've assembled here falls happily in between, at a not outrageous $7,500, and features technologically advanced products that offer good, often great performance. The process can be demystified--if you go with what your eyes and ears tell you and don't buy into the techno-jargon.

The TV is the heart of any home-theater setup, and there's an overwhelming array of choices: cathode-ray tube (CRT), plasma, liquid-crystal display (LCD, also known as flat panel), flat screen (not to be confused with flat panel)--you get the idea. CRTs, especially the newer, flat-tube models, remain the best choice for the masses. Rear-projection sets are often more affordable than large CRTs and offer the biggest screen sizes on the market (over 70 inches). Superthin LCD TVs have started to hit the market in the past couple of years and make a great option if you're looking for small sets for nontraditional TV rooms like the kitchen; I wouldn't buy one for my living room just yet because the picture quality still trails the other technologies.

If I bought a set today, it would be a plasma TV, which offers the same great profile as an LCD but with a better image. Although [2] Gateway's 42-inch Plasma TV (gateway.com) can't compete with the picture quality of top-of-the-line $6,000 sets, no one can compete with Gateway's $2,999 price for the performance it delivers. The most noticeable flaw is the set's display of the color black, a known weakness of many plasma TVs and a particular shortcoming of this model. And don't be taken in by the Gateway name--yes, you can attach the set to your PC, but this is a TV set first, a computer peripheral second.

All I wanted in a receiver was to be able to crank up the volume to 11--just like in This Is Spinal Tap. But there are other choices to make when picking what is essentially the brain of a home theater--like having plenty of inputs for your components, and support for audio formats like THX Surround and Dolby Digital, which help replicate the movie theater experience by splitting movie soundtracks between your front, center-channel, and rear speakers. (To truly imitate the cineplex experience, try overcharging yourself for popcorn.) I ultimately embraced [5] Onkyo's TX-NR900 ($1,499; onkyousa.com) because it supports nearly every audio format under the sun, which serves to enhance both movie viewing and good old-fashioned CDs. I also loved that I could hook it into my home network, letting me listen to both Internet radio and files stored on my PC's hard drive. While I expect that someday I'll opt for a stand-alone "media server" to store all my music and recorded TV programs, I haven't seen one yet that fits the bill. In the meantime, this will do. My one quibble with the Onkyo is that the manual made about as much sense as Spinal Tap's lyrics.

Like buying a house, purchasing speakers is a matter of how much size you can afford. I wanted a "big" sound without having to sacrifice half my living room for the privilege, and the [1] Energy Take 5.2 system (energy-speakers.com) lets me come pretty close. The speakers ($600) sound better than many twice their size and, more important, provide a great experience with both music and movies, largely because of their superb midrange performance. The sub-seven-inch satellites deliver rich, detailed sound and are nicely complemented by Energy's booming S8.2 subwoofer ($300).

It used to be that you'd now slide a VCR into the mix, but today two devices have replaced it--one for playing movies and another for recording TV programs. It won't be too long before you can buy an all-in-one product that will let you record shows, copy them, and watch movies, but several things need to happen before I can recommend one, including the resolution of a VHS vs. Beta--style format war. A DVD player is a good place to save a bit when putting together a home theater, since there are many perfectly acceptable players available for less than $150. But my dream player worth splurging on is [4] Denon's DVD-1600 ($499; usa.denon.com). The extra money gets you a topnotch progressive-scan model that produces a crisper, more filmlike image, which makes a significant difference with an HDTV-capable TV. Admittedly it is more noticeable watching Jurassic Park than Gosford Park. Try to turn up one of Panasonic's discontinued RP-82, XP30, or XP50 models: They deliver the same picture quality as the Denon for far less.

A digital video recorder (DVR) replaces all those unlabeled videotapes cluttering your living room (sure, it's only me who had that problem) by recording programs to a hard disk. That lets viewers pause live television and skip commercials much more easily than fast-forwarding through videotape. The TiVo name is well on its way to becoming synonymous with DVRs, but I prefer the [7] ReplayTV 5080 ($399, plus $9.95 per month subscription fee; replaytv.com). Unlike TiVo, which caved in to TV industry pressure and eliminated its button to skip commercials, ReplayTV makes its ability to bypass ads a selling point. And while there are versions with up to 320 hours of storage space, 80 seems plenty to me. If you watch more TV than that--well, you just shouldn't, okay? My only annoyance is that the setup can be frustrating, since digital video recorders need to play nicely with the TV, a phone line and/or home network, and your cable or satellite company. If you have satellite service, go with a combination satellite receiver/DVR (both Direct TV and Dish offer them), which is simpler to set up and eliminates the "Whom do I call?" game if something goes awry. SonicBlue, ReplayTV's parent company, recently announced plans to sell Replay to the company that owns Marantz and Denon. At this early date, it's not clear if the new owners will make any changes to the product.

Those elements make up the essentials of any home theater, but I would add a couple of other accessories to round it out. If you have kids or, like me, just need a good stress-relieving game of Tiger Woods golf every now and then, a videogame system is a must. [6] Microsoft's Xbox ($199; xbox.com) has yet to topple Sony's PlayStation, but with the introduction of Xbox Live, which allows gamers to compete online with select titles, it's more fun than playing against the computer all the time and definitely more socially acceptable than inviting your grown pals over for a night of Mech Assault. And because a home theater should encompass the home and not just a den or living room, I'd place a shelf system--think glorified boombox--strategically in rooms where the home theater doesn't reach. With its blend of classic elements like a CD player and high tech's latest goodie, wireless Internet connectivity, [3] Philips's Streamium MC-i250 ($399; usa.philips.com) gets my nod. While I wish that Philips offered more Internet radio stations, even its limited options are vastly superior to the typical commercial AM and FM garbage.

Once you decide what to buy, you'll need to decide where to buy, which isn't as easy as you might think. If you visit a manufacturer's website, the impression you'll get is that buying its products from an unauthorized reseller is just slightly better than stealing them and that you may void your warranty by doing so. I don't think twice about buying "unauthorized" products that are less likely to need repair, like speakers, but I try to play it safe with items like TV sets. Not everyone may enjoy the tinkering involved in getting a home theater set up, so ask a salesperson at the local high-end audio-video store. He'll either be able to recommend a good installer or offer to do it himself (and maybe cut a deal on your purchases at the same time). If you choose the do-it-yourself route, consider running an optimization DVD to adjust audio and video settings. Many TVs come with screens that are just too bright, since they look better on store shelves, but programs like the Sound & Vision Home Theater Tune-Up ($19.99, best for novices) or the Avia Guide to Home Theater ($49.99) will help produce the best possible picture and sound results (both from Ovation Software; ovationsw.com).

The last knotty issue is cables--and the dreaded cable up-sell every salesperson has mastered. Whether you buy premium cables to hook everything together is up to you. I can see an improvement onscreen using midrange video cables rather than the low-end stuff, though I can't hear much difference using premium audio cables and speaker wires. My audiophile friends would probably argue the opposite. Monster (monstercable.com) is the most famous name in premium cables.

In another 50 years, of course, cables may join black-and-white TVs on the junk pile. Around that time some magazine will cover the latest in home theater and ask, "Remember when TV was two-dimensional?" Ah, the good old days.