Overall that will make the BenQ particularly good for Sports/TV fans, as mentioned earlier.
Over two evenings I spent several hours viewing various favorite DVD's including Lord of the Rings, Bulletproof Monk, Amazing Caves (an IMAX production), Men in Black, etc. Consistantly the BenQ provided a very clean virtually artifact free image, regardless of the source. I did not detect any banding, which seems to (although minor) plague many of those $2000 selling price LCD projectors. Since the BenQ is the same resolution as your recorded DVD's there are no scaling issues which can create some artifacts.
Below are images captured from Lord of the Rings and Bulletproof Monk. As you can see from the images there is plenty shadow detail, thanks to the 2000:1 contrast ratio (that is so typical of DLP projectors). If you are not a perfectionist, the contrast, associated black levels and shadow detail are far more than just acceptable. If you are a perfectionist, you really can't expect real perfection in what is one of the two or three least expensive home theater projectors on the market
As you can see, colors are rich. in fact the image quality, is very balanced, with no inherent weaknesses. Blue skys are natural, fleshtones well done. (If there is any shift at all it is slightly to yellow, and in watching I did adjust the tint (only slightly), to compensate.
Unfortunately BenQ only allowed me the projector for a short time, and I did not get to spend the time I would otherwise spend on calibrating and tinkering with the projector.
The really great thing is, calibrating it really isn't necessary, although you might be able to make a minor improvement. As I have said, it puts a beautiful picture on the screen without having to adjust anything.
Bottom line, don't worry about it. If you can detect the rainbow effect, and it bothers you, you will either have to switch to a more expensive model, or to an LCD projector, such as the Panasonic AE700 or Sanyo Z3. My belief is that once you have seen the BenQ 5120, the lower resolution LCD models that are closer in price, due to much more visible pixels, will not be acceptable to you. Overall, few will see the rainbow effect (even occasionally), and even less will actually be bothered by it!