In a small home you need to remove things that take up space. One thing I have discovered that is if you like movies and dont want to have the huge rack of gear to watch them. Look into the AppleTV product. you can rent movies from iTunes for cheap and it looks darn good on a 42" LCD HDTV. it takes up almost no space as well. A friend of mine hid his behind the TV on the wall.
If you are more of a technophile and want more control and cant stand not having your collection of personal DVD's around then you have two other choices. first upgrade to a DVD changer that holds 300 or more DVD's. Store all your boxes elsewhere and have all the DVD's ready at a moment's notice. OR take the path that I have, I built a HTPC a computer that looks like a piece of stereo gear but records tv, plays music movies and stores the movies inside it's self as AVI files I rip using a program called "handbrake" I have taken all our 300 movies and ripped them to the hard drives in the HTPC. Now we can watch all our movies when we want without having the DVD's in the house.
Home theater is another issue. Right now we have a giant 52" HDTV in our massive 12X18 living room. In a smaller room you can get away with a far smaller set because you will be sitting closer. a 42" or even a 37" set is huge in a 10X12 living/dining/entrance room when you are sitting less than 6 feet from it. Also you can get away with far smaller speakers and get fantastic sound. In a small room even the $299.00 cheap JVC home "theater in a box" sounds fantastic. you dont have to buy the $2200.00 Denon or Marantz high end setups with huge speakers to get the great theater feel in a small room.
Home networking... Gone are the days you need a server and lots of network gear in a home. you can get a good N wireless network in your home with a NAS and have a nice high speed network that can do everything you want. Cheaper solutions are buying regular gear such as the Linksys NAS200 and the WRT54GL router you can stuff under one of the cabinets in the living room or even one of the dressers in the bedroom to cover the whole house. Adding a 500gig storage drive like the NAS200 gives you a place to easily back up your files.
home Computer... If you are into gaming then you are going to have less choices. IF you leave your games to the Wii or PS3 or xbox360 then you can get away with getting rid of your big desktop computer for a laptop. Dell sells decent power laptops for $499.00 now and they take much less space in the home. No more desk and 10 square feet or more given up to the computer. Kids can use used laptops from ebay (My daughters cost $100.00 and does all she wants)
there are tons of options for smaller living. One of the biggest benefits is to have you main living space walls covered with bookshelves. giving up that 11" depth on the wall but getting the ones that go to the ceiling will give you a ton more space for books and other items.