Drop the read surrounds and go for the better center. Having seamless transition between the fronts and the center will really enhance the movie experience.
I also agree that in your room you could go to the M22. In my direct listening experience in almost the same size room (12 x 20 x 8), the M22 + sub was pretty much the same as the M60 (minus the really low bits the sub provides).
On low frequency rumble and the EP500 being enough that's a tricky question. If you don't believe me, go to avsforum and read some of the DIY sub projects.
If I had the money, I would upgrade my 350 to the EP800 or similar.
See? Nick and I agree on some things!
How much did you pay him?