state of the art home theatre....

If your codicil is to be taken seriously, you should find the best custom HT shop in your town and you can act as the advisor. They will have the skills and experience to hide and integrate the equipment well beyond the abilities of most serious audiophiles.

I recently played that role when my kids wanted to set up a big system or two. My son-in-law wanted SOTA stuff and my daughter wanted nothing visible but the screen. We got estimates from 3-4 shops, made suggestions, got revised plans, picked a contractor, revised again and let them do it. They are still tweaking but, believe me, it was not so much the choice of components but the integration, installation and camouphlage did the job.

Something tells me, Phasecorrect isn't a "local shop" kinda guy. Just an assumption. I could very well be wrong.
I'd consider probably, yes, spending much more on the video system for your dad, and probabaly get a good(maybe used...although other options for new) DLP Mustang II projector(Marantz,sharp,Sim Seleco), or more expensive used LCos(like from PAW, or whoever makes the Rock stuff). Either way, you might do some research, maybe go to avsforum.com, and as what's the "latest/greatest" for your budget(which appears pretty ample.
That said, for the audio system, I'd probably just recommend outlaw separates driving either something like M&K K7 system, with a good MX200 sub(could substitute Paradigm Servo 15 or earthquake sub), or something similar. Really, for the money, something like this is going to be fairly unbeatable as an effective(most any setup/environment, as the room is always a challenge) HT system that's "resolved" sounding as well.
There's a gillion combo's, but I doubt you'll trounce on the above system for the money. You could go the "your favorite minimonitor route", and add sub and such. But typical music speakers can easily be setup for less than stellar results, lack reinforcment in the midrange/bass/dynamics department(usually one midrange/woof), and sound too open, coloring sound, mixing with walls/ceiling/etc. I like The K7's cause they integrate well, are dynamic, do superbly placed closer to walls, take lots of power with ease, and are prettty sounding indeed. Also, cheep Klipsch SB1's/2's do pretty darn good as well, but probably like softer electronics.
Anyway, I like recommending the above over the likes of others by B&W, Kef, Nht, triangle and other popular choices others might make, especially for your Dads needs. You also probably should shy from full range systems in that room, as smaller will be easier to integrate, more flexible, and you gotta cross em over as small anyway.
What I mentioned is tried and true for your application. I'm sure he'd be tickled...and so would you really

Niles In-wall speaker 8700 model with the alum/ti 8" bass drivers! Pretty amazing speakers for in walls.
Ceiling speakers SUCK.. but WAF love them.

in-walls are Designed for WAF.

True, I agree WAF for inwalls. But I do think wall monted compact monitors(even in white) can be an attractive and much better sounding alternative...yet another reason I vote for the M&K K7 system with K4 dipoles for surrounds w/sub. Even with a Denon Receiver(Outlaw separates stomps however), there's no way to really go wrong here!...stellar sound, trust me.(I do this for a living, and have sold from Polk/Paradigm/NHT all the way to Wilson/Theil/Logan's/S.Fabers, you name it I like the k7 system for your dad's scenario

If you're looking for WAF, Wives generally prefer in-wall speakers -- they hate speakers intruding into the room. You can hide a sub-woofer behind a couch or under an end table. They also freak when they see a stack of components and more than one remote control. If they are not audiophiles, get them a home theater receiver and save everyone a lot of hassle. Wives also love plasma displays -- they don't intrude into the room. For a compromise, get him a pair of nice speakers for his front left and right so he can have quality two-channel music, maybe his wife will be okay if only two speakers intrude into the room -- it is worth a shot.