I've seen pictures of someone's home gameroom that was about that size, maybe smaller. It looked to be a large closet or small utility room, and he had 6 or 8 games packed in there. He had neon patterned carpet, brightly painted walls, etc. so it definitely looked like an arcade and not a storage room (though he did have a few parts stored on top of the games).
Sure, you couldn't invite your favorite 20 gamers over to play at the same time, but for the times you are in there by yourself (probably will be 95% of the time, after all) you can get that perfect arcade feeling and ambience, even with a tiny room. I say go for it!
Wade