you may also luck out at an OP, if you explain to them what the project is for, you may get some free stuff that the Op can write off on his taxes (an old cab, your coindoor, monitors etc. you'd be suprised). its worth a try.
as far as the rom issues go. i would avoid it all together and buy a pc 'arcade flashback' CDrom of some sort, so that is it fully legal. or go the 'star roms' route, something really on the up and up though. you dont need to teach a whole grade of kids how to steal copywritten material (they'll learn that soon enough)
back to your setup though. if i was in your position (monitarily as well as literally) i would skip the tv idea, use the monitor you have, or buy a cheap 19" they are super cheap right now. get an ipac maybe even the VE (value edition) or the key wiz, both are well worth their prices. buy a set of those joysticks and buttons that are on ebay all the time for 20$ for a joystick with 6 buttons, they arent the highest quality sticks and buttons, but your on a budget and most of what your gonna end up with isnt going to be top notch. you can find trackballs on ebay as well, get hte usb mouse interface from oscar controls.
and your best money spent is going to be buying the "project arcade" book. that will teach you everything you need to know and i gues swill be your kind of ad hoc textbook (not sure of the copyright rules etc about that, but you get the picture)
god luck and have fun!