In your case, I would move the side surrounds much further back in the room. Consider the Q series speakers placed about a foot and half from the back wall on the sides. In this configuration, you'll get a really good 5.1 envelopment. I think the In-walls would work just as well in this scenario, but might be more localized (which you may prefer).
Don't be too afraid, though to also stick a couple of speakers behind you for the 7.1 set-up. It will make the rear soundstage "pan" better and helps to fill out the back of the theater. Filling out the back with sound really goes far to "immersing" you in the soundtrack.
Noting the present lack in material with 7.1 soundtracks (but also recognizing the existence of soem very good processing software [DPLIIx, for example] which will put your rear speakers to work), I agree with the majority that it is better to have a great 5.1 than a so-so 7.1, or a good 5.1 opposed to an ok 7.1. You shouldn't be adding compromise by adding speakers - it should fo the other way. If you find that you can't add two rear speakers without compromising the side surrounds, then leave them out.
