I have a 42" 1080p Panasonic plasma from their previous generation, and it's fantastic. Reviews of the current gen are even better because they finally got the contrast to where it needs to be to dethrone CRT. The one you've selected is certainly a great choice.

However, at the price of that TV, you're venturing into front projector land. Having owned many front projectors, I can tell you that it's definitely the way to go for true theater-like entertainment. Would his room allow for a projector?

For the speakers, I've owned plenty of those also. My favorites in your price range are Ascend Acoustics. Their speakers are ridiculously accurate and well-built at a really good price, although they do have a relatively new high-end model called the Sierra-1 that costs a bit more. You can use the system calculator on their site to put a package together and add up the cost. I recommend the following:

CMT-340 SE for L/R/C

CBM-170 SE x 4 for the surrounds

For the subwoofer, take a look at SVS. Really cool cylindrical subs.