is a center channel really necessary??

In general I would say yes, unless you plan on sitting exactly centered between the front speakers. The center channel helps a lot with centering the dialog onto the screen if you are sitting off to the side.

Now having said that it has been my experience that the center speaker always sounds a little different from the mains and going with only two front speakers results in a more seamless sound when the sound pans across the screen. That is with inexpensive equipment - high $ stuff may be better.

Mark

In a multi-channel setup, yes it's an intregal part of it all. I direct you and any other here to go to Home Theatre's, Scott Wilkenson's Home Theatre Geeks podcasts. Two episodes ago he interviewed Dr. Floyd Toole. Any audiophile or hifi fan should know who Dr. Floyd Toole is. That podcast dealt mostly with dealing with sub woofer bass and location but Dr. Toole denoted his preference for multi-channel sound over traditional stereo sound. As a result the centre channel is very important.

That said I am a fan of stereo for music made in the stereo realm. I find most of the multi-channel algorithms turning stereo onto multi-channel sound are not quite as appealing as one could hope for. But that said THX Music cinema can sound pretty good. However having an Oppo BDP-83 and the supplied AIX Records Blu-ray sampler disc. I find professionally mixed hi rez multi-channel audio of the likes AIX Records does is VERY IMPACTFUL AND SUPERBLY CREDIBLE!

If you didn't care before, you're likely not going to be miserable without one now. Still, a center anchors the sound to the centered immage, especially for off-axis listening positions.
At very least, you'll still need latest processing for best sound. Video scaling and switching is also a big plus, room EQ's in the latest pre's are stellar improvements, sonically, etc.
If it were me, I'd be at least adding the above, plus subwoofer. Otherwise, I'd keep a two channel setup like before, and put small quality satalites around the room, and hide a woofer somewhere - and add all the above. Otherwise, inwalls all around, and a quality center speaker for the center, plus all of the above - including 2 channel setup.
To simplify, however, yeah, option one.

IMO the Center channel speaker may be unavoidable in situations where your sitting area is wide or when the front left and right speakers do not have very wide horizontal dispersion.

For music no I prefer 2.1. For movies you need 5.1
three up front and two in the rear with a sub. The question I ask is do you need a center in the rear ala 6.1 and I say no