I completed nailing up the sheetrock and edge beading on theater room soffits. You can really get a feel for how the room is going to turn out. The picture below is a bit fuzzy - a flash would have washed out the lighting...
The pair of lights shown on the right on a separate dimmer from the ones on the left, so we can keep the light a bit lower near the screen. So far, so good - the room feels very comfortable, and the indirect light actually enhances the projected image. I put 30 watt PAR20 bulbs in the cans, which are about 4 feet apart.
I had an unexpected (negative) side effect of the recessed lighting. All the wall imperfections are easily seen. The horizontal tape lines really stand out - the sheetrock job by the previous owners is poor in the basement. It looks like I am going to be skimming the walls with a 12" trowel and re-texturing.
The soffit definately improves the sound quality in the room, cutting the echo. It also seems to stop some of the sound transmission to the upstairs. I am assuming that the top plate of the wall was a main sound transfer point, since its solid, and the soffit covers it up.
80 linear feet of soffit took a bit of effort, but its worth it. I still need to tape, mud and texture, but it won't be that bad.