The size TV to buy is dictated as much by the size of the room it will be placed in as much as your budget to by one. Both should be considered carefully before you buy.
Generally, an enjoyable TV, unless it is to be used in a kitchen or when traveling, has a 20 inch screen or larger. Anything less requires you to sit quite close to enjoy it. Even 20 inch TV's are best viewed in the 6 to 7 foot range.
Generally 25 to 27 inch televisions are best viewed in the 8 to 9 foot range. 32 to 35 inch TV models are best at a distance of about 10 feet. Add a foot to the viewing distance for each step up from there. So if you have a small room, a 20 to 27 inch television will do fine. In contrast, very large rooms in excess of 120 square feet can accept TV's 40 inches and larger. If you have a monster-sized room, a 60 inch rear-projection model or even a video projection system may be in order. Video projection systems have improved dramatically in recent years and most are bright enough to use in rooms with some ambient light. However, for best image quality, curtains or blinds must still be used to reduce the amount of light entering the room.
For most living rooms, a 27 to 32 inch model will do nicely, and prices are dropping, especially on 25 to 27 inch models. Often, a good 27 inch television can be purchased for what a 20-inch model (with fewer features) would have cost just a few years ago. Of course, HDTV sets will add to this cost, though prices are dropping dramtically. Several models in the 35 to 40 inch range are available for under $1000.
Keep in mind, TV's are measured diagonally, whether they are widescreen or standard. This means you would need a larger widescreen TV to get the same size standard definition image (in the middle of the screen) as a similarly sized standard definition screen.
Other thing to consider is HDTV sets offer a clearer picture, so you can sit a bit closer to them than you could with an SDTV set. However, for best picture quality, stick with the above guidelines.