The projectors I have would need to be back around 15 feet to get the 4-5 foot image you're thinking of, though it varies by the lens on the projector. You could put a wide angle adaptor on it but that would reduce the amount of light coming out.

Now as for the loop there are various options. One as you already figured out is simply to pull it way out of the projector, like up to the ceiling or whatnot. I've seen this done and it works well, but keep in mind that 3 minutes is more than forty feet of film, so 20 feet up, 20 feet down or any number of permutations like that.

Another option that I once saw was a box on top of the projector where the film bunches up as its fed through. This takes up a lot less space but unless done properly can result in jams and breaks. The container the film feeds into and out of has to be very precisely measured so that the film can't twist or bind. You also need to avoid sharp corners. I wish I had a photo of the rig but I don't.

The Hart House Film Festival in Toronto does a super 8 loop installation in the festival lobby every year. Maybe try and get in touch with the guy who runs it, Rick Palidwor. He could probably help you out. The man's obsessed with super 8.