Publis,

I think using in-ceiling speakers for your side surrounds will be fine.  In my house that I just sold, we were using a 5.1 setup with in-ceilings as our surrounds and they performed great - they were even pretty good with music too.  And our situation was very similar - we have a large window behind the couch that we didn't want to partially block with speakers.

The only concern I have in your case is just how high they will be considering the cathedral ceiling?  In my case, it was a standard 8' so height wasn't an issue.