Should I buy a smaller LCD TV with better quality vs a slightly bigger LCD with slighly inferior quality ?

The 46" or try to shop around for more choices. Do not settle with one brand.

It is the quality that is important rather than size. For the size of your room a smaller one is better.

One thing you want to pay attention to is the HD format that you are going to be buying. If you are going to be that close to the TV you might want to go for a 1080P TV instead of a 720P. I don't know what the ratio is on the TV's that you are looking at but generally if you have something over 40 inches it's a good idea to go with a 1080P TV. 720P will not be enough. I have a 42 inch 1080P Toshiba Regza and it looks terrific from 8 - 10 feet. If you are going to be really close the higher definition is worth the extra cost. If you are going to be away from it you can go with the lower definition set on the 40 inch but I wouldn't do a 720P for the 46 inch TV. You may not be happy with the result. A 40 inch TV is sufficient size wise. You really won't know for sure until you take it home and install it.

40 inch is more suited for you. One should view TV from 6 to 8 times the distance of its diagonal. i.e. 6 x 40 inch or 46 inch as the case may be. You have only 8 to10 feet distance, hence 40 is not only better but has superior quality.

Small screen is better if you have to watch TV from the distance of 8 to 10 feet, If it is bigger room of hall only then bigger screen will show you sharp picture, from near picture will not look sharp. The smaller the screen distance should be less, the bigger the screen the distance should be more to look for sharper picture

Go for 40 inch .. Sure.. I have one.. I watch it frm a distance of 12-14 feet .. And it rocks.. Why waste money simply.. all the best take care..see you..