Don't stretch the picture! From what you desribed, stick with the normal 16x9 setting. That should give you the most accurate image.

/edit/

From what I just read, this is not a HD projector, correct? If that is the case the native setting would be ideal for overall picture quality. However, if the normal 16x9 setting is ok with you from a quality standpoint that would be the next best option.

Here are the specs on the projector

InFocus IN72 Specs

Video: Component and RGB HDTV (720p, 1035i, 1080i, 1080p-24Hz), 24p. DVI/HDMI with HDCP
for digital video and encrypted digital video. Component EDTV (480p, 576p progressive scan), Component, Composite and S-Video standard video (480i, 576i, 576i RGB SCART with adapter, NTSC, NTSC M 4.43, PAL: B, G, H, I, M, N; SECAM: M).
Computer: Digital and analog PC, Macintosh, up to 1024x768 resolution through intelligent resizing (Separately available M1-A cable for analog sources or M1-D cable for digital sources required.)
Communication: USB (with separately available M1-A or M1-D cable)
Inputs and Outputs

1 - Component (RCA): HDTV, EDTV (progressive), and Standard TV component video (interlaced)
1 - S-Video: Standard TV Video
1 - Composite (RCA): Standard TV Video
1 - DVI: HDTV RGB, HDTV Component, Digital Visual Interface (DVI) with HDCP decryption, computer, and USB, HDMI via available adapter
1 - HDMI: SDTV, EDTV, HDTV Component (4:4:4 or 4:2:2) and RGB digital video, Interface (HDMI) with HDCP decryption
1 - 3.5mm Mini-Jack: 12v screen drop trigger
SCART RGBS: RGBS through component and composite video connectors with separately available adapter
Display

Imaging Technology: Texas Instruments DLP DarkChip2 480p 12° DMD
Resolution: 854 x 480 (16:9 widescreen)
Projection Lens: Fully recessed 12 element zoom lens, all glass, F/2.4-2.6, 21-25mm focal length (1.2:1 zoom ratio) with rack and pinion focus and zoom control
Color Wheel: Proprietary, 6-segment color wheel (6500K color temperature), D65 color calibration
Calibrated Contrast Ratio: 2000:1 full on/full off, typical
Lamp (dual mode): 160/200 Watt SHP, 3000 hours average lifetime
Video Optimized Lumens: 900 ANSI max
Projection Modes: Front/rear/ceiling mode
Focusing Distance: 5' (1.5m) to 8
Keystone Correction: Digital, up to +/- 20° vertical
SMPTE Brightness: Up to 11.5' (3.5m) wide on a 1.0 gain screen
Throw Ratio: 1.76:1 - 2.12:1 (distance/width)
Video Processing: Pixelworks DNX 10 bit video decoder, advanced motion adaptive deinterlacing for Standard and High Definition sources (including 1080i) 2D comb filter

In the native mode the picture will not be stretched which would give you the best overall quality, but as you know you'll get the smaller image.

If you choose the normal 16x9 it will stretch the image proportionally on all four sides which shouldn't cause any noticeable distortion to the image itself, people won't look too wide for instance. What will happen though is that the image will lose some overall quality and won't be as sharp and crisp. If that's not an issue then use this setting.

If worse comes to worse you can always switch to the native 16x9. From a technical standpoint the native setting is best, but practically speaking, you obviously want the biggest picture you can get otherwise you wouldn't have the projector. Like I said, unless you find that the quality suffers greatly, the 16x9 mode should be fine.

That's the same size screen I plan on getting.  Let me know how far back you had to go!

Hey Bill, glad I could help. No, I don't have a projector (yet) but I do plan on getting one.

I'm involved in the industry and even though I don't typically deal with projectors the concept is the same. One thing I'd throw at you is this: Even if you just use a THX certified DVD, try doing at least a basic calibration on your system. You'll see a positive improvement, although it may take a little while to get used to it. That seems to be the case with a lot of people. If you can spare $20 for an AVIA or Video Essentials disc, or even the Monster calibration disc, it would be a bit better yet. Same goes for your audio system. Once you get it even close you'll hear a tremendous difference...

Regardless, enjoy!

Get at least one subwoofer. If you can get two or more (identical) subs that would be ideal. It will help to round out the overall bass response throughout the entire room.

If you do add a sub, or multiples, go into the speaker settings on your receiver and select "small" for the main five (L/C/R/SR/SL). This will force all LFE (low frequency effects) information to get channeled through the sub(s). It will also help reduce the strain on the receiver which would help you to get better overall audio performance from all of your equiipment.

The projector should have even the most basic of options to play around with. These would include (names may actually be different for your projector) Color, Tint, Contrast and Picture...Much like the audio, proper adjustment of these settings can help your equipment run better and last longer.

I'm not really positive off hand what would subs would be the best match with the rest of your system. I can look into it if you'd like. Running the subs wouldn't be a problem. You connect one to your receiver (like normal) and then daisy-chain each additional unit. Your room dimensions are pretty good for a home theater so just two subs might be good for you. Obviously, not being in your house I can't say that with any amount of certainty though. Chances are really good you wouldn't need four, although it's still ideal.

Placement is another issue that often confuses people. Just about everyone wants to place a sub in the corner, which is more than likely the worst place you can actually put it. If you're going to run two, put one just off-center to the middle of the wall, where the screen is leaving around 8-12 inches between it and the wall. Then, for the second one, simply place it straight back on the opposing wall. IF you would use four then you COULD put one in each corner. However the best placement is still going to be just off-center of the wall it is placed at.

FYI, any of the calibration discs I mentioned earlier will include audio and video tools to help you along and with the process. As you're new to all of this, they also have relatively easy to understand instructions for each test and/or adjustment procedure.

I"d be happy to look into it for you. Give me the model numbers, if you have them available, for your receiver and alll of your current speakers. That would help tremendously in narrowing your options down. I don't know how new your gear is but your best option would be to stick with at the very least the same manufacturer for all our speakers (subs included) and preferably in the same line of product. If it's relatively new it shouldn't be hard to match it up together.

A general rule of thumb on sizing is going to be more relative to power than actual speaker size. For the best performance using roughly twice the channel wattage is ideal. So, two 12 inch 200-250 watt subs would be a great starting point for what I know of your system. You could use a couple 150 watt units as well if your budget can't accomodate the higher cost of the larger units. You'll want to make sure that the subs are identical as well. 

I'll look forward to your response and I'll go from there.