How do I decide which speakers are best for my home theater?

When choosing a set of speakers for your home theater, start with the center channel. On average, the center channel reproduces 50% of an entire movie soundtrack and over 90% of the dialogue. Choose a center channel speaker that fits your space as well as your budget.
Next, choose the front left and right speakers. Ideally, these should be as close a match sonically to the center channel speaker as possible. The front three speakers create the front soundstage similar to the way a pair of stereo speakers creates the soundstage in stereo music. If the front three speakers are not well matched, the soundstage starts to fall apart- imagine listening to stereo with a large wooden speaker in the left channel and a small plastic speaker in the right channel and you get the idea. So if you select the Level TWO Center Channel speaker, it is best to buy the Level TWO Main speakers in order to achieve the best sonic match and thus the best soundstage. Similarly, if you plan to use an in-wall speaker for the center channel, then your best match for the front left and right channels will come from two other in-wall speakers. If your situation does not allow for a perfectly matched set, you can still achieve decent imaging and panning effects as long as the speakers are not too different. Just be aware that without a matched set you are straying from the best possible audio performance.
Moving on to the surround speakers, again, the ideal setup is to use the same speakers in the back left and right as used for the front left and right. However, it is difficult to establish a "side" soundstage between the front and back speakers so having the back speakers match the front speakers is not nearly as important as having the front three match. Often, our customers who choose Level THREE for the front speakers, opt for Level TWO speakers or Middies in the back because of space considerations. The result, while not exact, is perfectly fine because we design these speakers for a similar tone.
For similar space and cosmetic reasons, in-wall speakers are often used in the back even though regular cabinet-style speakers are placed in the front. This is also acceptable, just be aware that the tone will be different so you are exchanging a little bit of sound quality for aesthetics. Should you go this route, choose an in-wall speaker that is designed to be as close in tone as possible so that panning effects are not distracting. We recommend using the HD-R65 (high definition round) or HD-W65 (high definition rectangular) when combining with our Level TWO or Level THREE cabinet-style speakers.
Finally, a Powered Subwoofer is necessary for reproducing the unique Low Frequency Effects channel recorded in most of today's movies. It can also help augment the lowest frequencies in every channel. We recommend you consider how well the powered subwoofer blends with your main speakers in music listening when selecting the most appropriate sub. Speaker drivers are typically built in the following sizes: 4", 5.25", 6.5", 8", 10", and 12". In general, you'll want to get a powered subwoofer that is 3 "sizes" larger than the driver found in your cabinet-style main speakers (or at least 2 sizes larger than found in your in-wall speakers). That is why our Level TWO Main Speakers (5.25" driver) are best matched with the Level TWO Powered Subwoofer (10" driver), the Level THREE Main Speakers (6.5" driver) are best matched with the Level THREE Powered Subwoofer (12" driver), etc.

See Also:Do I really need a powered subwoofer?
 What is the difference between the HD and MP lines of in-wall and ceiling speakers?
 Does HTD offer an in-wall center channel speaker?