We recently bought a 37PX80B which looks huge compared to the old 19" Philips CRT we had, but it does look good. Our decision was whether to go for 32" or 37". Our decision was based on what we would be viewing, which is mainly Freeview and some DVDs which would be played on an 'old' DVD player. (We're yet to upgrade to a Blu-ray player, which will happen at some point.) Our decision was slightly different because it was LCD v Plasma. Plasma is definately more forgiving for Freeview, especically if you have 20/20 vision like my partner, even over our viewing distance which is about 3m, at the shortest and up to 6m (approx) at longest.
You do get some pixelation/banding, even on the plasma, therefore if you are going to be watching Freeview especially on fast moving such as sport or images containing objects that are very sparkly. I would suggest trying both out in the shop first and standing roughly as far away as you would be in your home, and watch a variety of channels/program types. (We did a number of times in John Lewis.)
My other piece of advice would be, whichever one you do get, take time to set up the colour scheme and sharpness, especially if you are going to watch Freeview. I have to admit to being dissappointed for the first 24 hours after unloading and installing our screen. However, after playing with the settings and changing a couple of cables, the picture the quality is much improved (and I'm a much happier person).
We couldn't have fitted a 42" screen even if we wanted to. However what size you go for depends on the space in your living room and how dominant you want the screen to be. This was the real challenge for my partner. She didn't want a huge screen to dominate the room as we have some quite dominant features already and therefore preferred the size of the 32", but similary the picture quality needed to justify the cost. Ultimately that's what decided it. The 32" LCD was at least £100 more expensive than the 37" Plasma.
Finally, we have a 16 week old little girl. She never really noticed the old 19" screen. However as soon as the new screen was installed and working she couldn't take her eyes off the bright colours and peoples faces.