Daily India has some fun ideas for putting a home theater in a small room:
Start your search for the perfect home theater system in your small room by looking for the right television. Your television should not overwhelm everything else in the room, especially if you are choosing the components for a bedroom. High Definition and wide screen TVs are available in any size now, so it shouldn't be too difficult to find a screen that fits nicely into your room.
You might want to consider incorporating a cubby hole for your home theater in your smaller room. This will allow you to actually lessen the floor space that your system takes up, and will not make the room appear any smaller. Another idea is to buy a piece of furniture such as a compact entertainment cabinet, although keep in mind that this will cut down on the amount of space in a room that may already appear crowded. If you want to go this route, a good option is to utilize a cabinet which has a built-in slide drawer for your television, such as the ones used in hotels.