Yes it was that way initially. But the cot in the other room was not large enough to accommodate my kid who rolls a lot. So got a large custom made mattress in the HT room which is big enough to accommodate everything. It becomes a diwan when rolled to the sides. People who visited my home always felt its a dedicated HT. Its all about planning I believe.
If I am asked, I would always prefer to have projector setup in bedroom (if its big enough) rather than living room when dedicated room is not possible. Controlling light, visitors and neighbours botheration, stuffing a TV in same room, elderly in home preferring soap operas on satellite channels, and so on.. Not everyone in the family would abandon their task and sit for a movie. Imagine small kids playing in the dark? These seem to be very challenging for me.
Again, it differs from home to home, depending on lot of factors. So one has to think ahead and decide what's most suitable for them amidst of all compulsions and limitations.