5.1 or 7.1 for 14' x 17' room ?

It would save $ on speakers and amps to do a 5.1 system. For audio it will make no difference because the current selection of recordings, even SACD, are generally limited to 5.1 as far as I know.

I'd suggest that if you decide on a 7.1 system that you use a small and inexpensive pair of dipoles for rear surrounds. Missiion 77ds comes to mind because they add an extra dimension of realism to movie soundtracks that have been recorded in 6.1. They can be picked up for about $200 or less if you're good with Google, and since they are samll, triangular and white, they can be ceiling mounted to blend in. There is not much advantage to the 7th channel because the 6th and 7th channels simply split the same signal in two. For action movies, say in a scene where gunfire is coming at you from 360 dgrees, the extra channels produce some interesting effects, but you don't need heavyweight speakers with deep bass.

So to answer your question - no, your room is not too small for 7.1 if HT is important to you and you use samll dipole speakers. The practical differences between 5.1 and 7.1 are minimal, but certainly enjoyable. The surrounds should be placed immediately to the left and right of your listening position and the rear surrounds should be placed several feet behind and above your listening position to best achieve the seperation necessary to notice the effects described above.

You might be interested in the comments on the Bryston newsletter (the issue just before the current one), where James Tanner interviewed the leading recording engineer in Hollywood (who has done the sound for more than 50 of the most successful movies of the past 10 years). The interview says to save your money on 6.1 and 7.1 surround systems, and instead build a really good 5.1 system, since Hollywood has only released a few movies in the expanded surround formats, and intends to stick with the 5.1 format for a number of years. The engineer who was interviewed said that it is hard enough to get a really good sound mix in 5.1 format, and editorialized that he has NEVER heard a good 6.1 or 7.1 surround recording because it is very hard to achieve.

My own experience is that the 6.1 and 7.1 formats (let's totally forget 10.2) are an utter waste of money for 95% of home theater buffs, since their rooms are too small to accommodate the extra speakers, and few people have the money to buy 2-4 more good speakers and additional amplification.

The Lexicon processors provide their own 7 channel algorithm that can and does work with any format. I believe you can achieve good results with a placement that includes far left, left, center, right, and far right along the front wall and bipolar surround at listening position along side walls. This works well if your front wall is the long dimension of the room. If your front wall is the shorter dimension, you can pull the far left and far right about a third of the way to your listening position along the side walls. In every comparison I've done, I prefer the Lexicon algorithm (parameter 'side speakers on') to not usining it. (YMMV)

Your room physically is almost exactly as mine is and I use a 5.1 set up that more than fills the room. In addition I have french doors and no window treatments. The problem I'm dealing with is the room itself. I have found that the hardwood floors make the room very bright compared to the wall-to-wall carpet I had. I added a 9x12 area rug which helped to reduce the echos but I still need to do more. I started to look at hanging tapestries and now my wife thinks it's great that I'm into "decorating". Can anybody recommend any THX-certified tapestries?

My HT listening area is about 13' x 17', and I noticed a subtle but worthwhile improvement when I added two rear speakers to expand from a 5.1 to a 7.1 channel system. The sound is more enveloping both with music and movie soundtracks.

I use a Lexicon DC-1 prepro, and independent of the source material the Lex can generate 7.1 channel sound. If I had not had Lexicon's Logic 7 to generate 7.1 channels, I would not have added the two extra speakers and power amp as I agree that 7.1 channel source material is questionable.

Some of the newer prepros have THX Ultra2 and ASA which I believe can generate 7.1 channels from 5.1 channels, but do not know how that compares to Logic 7.

My speakers are an all M&K sub/satellite system. Originally I had two tri-poles on the sides of the room about 2/3 of the way back from the front wall when I ran in 5.1. For 7.1, I added two direct radiating satellites at the rear of the room and configured the DC-1 accordingly. Yes, its more money, but for me it was worth it.