I was just going to post this link.
Although I'd LOVE to have a really cool backyard setup, we do something fairly simple.
It stared because I needed a projector for work (laptop presentations, etc.) I then realized with a pretty small investment, I could use it for other things, as well.
We got a Gemmy Blow-up Screen (I think at
Walmart.com). That was about $200. It's super easy to set up - only takes about 10-15 minutes and an electrical outlet for the power.
We also have an inexpensive (relatively) projector. Worry more about lumens more than anything else for an outdoor theater - you'll need it. 2000 lumens works pretty well after dusk. When it's DARK, it's perfect. If you've got a couple extra bucks, try and find a 2500 or 3000 lumens. But remember, it's going to be outside (moisture, bugs, people tripping over the cord in the dark, etc) and mobile, too - so it might get a little more "action" than a traditional fixed in-home projector. So, don't go overboard just in case. You can pick up a decent NEW projector for $500-600 or so. Remember, the bulbs are expensive. Sometimes if you buy an extended warrantee through the store (like
Best Buy), they'll cover the cost of 1 bulb replacement. Sometimes the warrantee is less than the cost of the bulb, so it's a good deal.
Now, while the projector is important, the sound will really blow them away. You don't even have to go nuts with it either. A couple years back at our grocery store - you know that section where they sell small TV's or DVD players and junk? They had a cheap 5.1 DVD with surround sound speakers. It's probably only a total of 250-300 watts (for the 4 speakers + subwoofer), but you don't want to tick off the neighbors, either (since the movies will probably run until 11PM, figuring starting at 8-8:30PM due to light). We position the small speakers surrounding where everyone will sit, and cranked to maybe half-way - REALLY blows people away!!! I think we paid $99 for it.
The best part is that it's all pretty portable. The screen comes with it's own carrying bag, as does the projector. And we bought a plastic Rubbermaid container for the DVD, speakers, projector, wires, and (this is very important) - you're going to need a surge protector multi-outlet thing. There are NEVER enough outlets! Oh - and Off. Lots of Off and Citronella Candles. If we're invited over friends for a pool party, or a picnic, or whatever, we bring along our container and in 30-45 minutes, we can set the whole thing up wherever we go! We get a lot of invites because of it!
As I mentioned, I use the projector, DVD player (and sometimes the screen) a lot for work, too. 90% of the time it's used for work for presentations, seminars, education, etc. So, it's multi-use for not much more cost.
You can have a very nice set up for about $1,000 that'll really work nicely. You can even go cheaper, if you're creative!
Good luck! You'll LOVE backyard theater!
eating popcorn! 
on it? 
DH and I lived in a townhouse for about 3 1/2 years before we moved here, and we always had really craptastic neighbors who would blare music at 2am, or play their electric guitars at 3 am (with the amp!!). They hated me because I would periodically call the police and report them- but have some courtesy! Good grief. 
