Thank you everyone for their great ideas. My wife and I talked a lot last night and we are pretty much sold on Coal it seems. While it would be easy to drop $3k and get a pellet stove with 2 tons of pellets installed (great deal if I were interested), it seems that we both are uncertian of the future of pellet prices.
We also came to a couple realizations. Keeping the house at 68* the first year we lived here, we used under 550 gallons of fuel oil. Keeping the house at 55, we've used 185 gallons since last march. These numbers are for heat and hot water. We're not huge consumers.
However, oil prices are going to do nothing but rise. Using coal, we would want to keep the house at around 66 / 70 (night / day). Both of us work so when we're not there, we really don't need as much heat.
Crunching a few numbers, I am guessing that we'll need 2.75 tons of coal to equal my 550 gallons of fuel oil. This assumes a 100% efficiency which is far from true, but the coal stove will likely be more efficient than my 20 year old oil burner.
At the current prices for delivered fuel in my area, this means that I will save around $650 / year using coal. I will also have a warm house!
As I had said earlier, my wife and I will most likely be finishing our basement in the next five years. My reasoning would then be to find a small coal stove for supplimental heat (something perhaps like the Leasure Line Econo 1) over the next 5 years. Hopefully, it will have pretty much paid for itself by this point. When the basement is redone and I have the ability to add enough space for a coal burner (my furnace is crammed in a corner surrounded by the fuel oil tanks and all this surrounds my chimney).
Finally, in our discussions last night, we both agree that we really like the look of a fire. It's soothing and we have always wanted something like this in our main living space.
Oh ya. For anyone interested, I think we are going to be okay with the 4 ft requirements. I will have JUST enough space to put an exhaust vent!