Yes, Hififan, smaller speakers would be preferable. This guy's big Duntechs in that room as well as the mix of in walls he is thinking of using will definitely detract from the surround effect. With the right room correction software it could be acceptable.
I did a 7.1 room smaller than this using Gallo's. The Gallo adjustable mounting brackets were used to wall mount the sides and rears. The reasonably priced Onkyo 616 room correction did a terrific job.
Gallo's are an incredible choice for HT. They're not stupid expensive, they will work in all but very largest rooms, easy to locate, and acceptable WAF factor. With the left and rights on stands they can easily be moved out to a two channel location where they'll image like crazy.
I'm not going to argue that large dissimilar speakers in a small room is the way to go. With a set of seven appropriate sized speakers and a sub in a room that size, 7.1 and 7.1 matrixed 5.1 media will defiantly work.
My suggestion to the original poster is to not merge HT and two channel. Don't go overboard with HT speakers, a processor, and amplification. A modest but modern receiver, seven small speakers, Blue Jeans HDMI and speaker cable, high end subwoofer, and a plasma display, will do it. It's just TV.
