We found this excellent community resource on setting up your own backyard theater. The second post from the top contains a detailed step-by-step tutorial, but the basic points are this:
To start, you'll need the following components:
- A video source (usually a DVD player)
- A video projector
- A screen
- A sound system
You may already have some or all of these components, or you may have to get some. If you need to buy, don't look for the biggest or the best, just find the best prices. Check Craigslist for used components. Remember: you're not looking for home theater quality - the "wow" factor of watching a movie on a large outdoor screen will more than compensate for less-than-perfect image or sound quality. (Remember the horrible, barely audible tinniness of the speakers at 1970s drive-ins?) And later, if you get really into outdoor entertainment, you can always invest in better components for future summers.
Be sure to read the full tutorial for many hard-won tips from hardcore outdoor theater enthusiasts.