I did some research on
AVS Forum before I got a Pioneer 50" plasma. In your situation, I believe you'd be better off with LCD because of the light coming in from the windows in the room. Many folks on AVS swear by Roman at
Invasion Displays. I found him top-notch in every respect when I bought mine and would recommend you chat with him.
There is a "formula" for recommended screen size for a given viewing distance, and 42" might be too small. You'll lose that "immersed" feeling, but I understand your concern about the screen dominating the room. From what I've read, 1080i is overkill, unless you're extremely close to the screen.