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We usually sit 10-12' away.  It's annoying whenever we have to use anything wired -- the PS2, for example, has to be pulled as far from the receiver as possible for the PS2 controllers to reach us.  It's literally sitting on a table about 4' away from the TV (toward us) and everything is stretched.  We don't bother to use it much anymore, simply because it's so inconvenient.

I have two USB extension cables for Guitar Hero 2 on the Xbox 360.  We don't sit any closer because big TVs make you dizzy from too close.