Rule 1; remember this is business.

if you can provide a system that meets 'their' needs and MAKE money (preferably more then your opportunity costs); then do what you can as you never know what the future of that customer may be (remember the long term value of a client can be huge)...if installing a system that meets 'their' needs will cause you to lose money now or in the future, then tell them you will have to pass/may not be the right fit for them at this time.

I just told a guy I was not interested in looking at his project because I couldn't reasonably meet his budget. His budget was 3k for a conference room (projector, screen, avr, speakers, equipment stand of some form, cabling and install)...told him unless he could get to 5k it was not worth my time to do the consult; he found someone else and I don't have to worry about how much time and money we'd loose on that project.

...remember, its just business, don't take their budget constraints personally.