Displays based on diffraction effects can provide very high lumen output at high contrast ratio, due to the absence of polarizers, low losses, large-area light valves, and bright light sources. The electron-beam addressed oil-film diffracting light valve employed by the Eidophor is an expensive technology. Recent developments in diffraction form liquid-crystal devices, micromechanical gratings, and elastomeric deformation, could result in a low-cost high- efficiency projector. Therefore, it is of interest to examine the performance limitations of diffractive systems in general, and in relation to other systems. The throughput efficiency of a projector is related to the light source collimation required to transmit light through the limiting apertures of the system. A diffractive device expands the optical divergence, and consequently sacrifices system optical throughput. If the source collimation is increased by the availability of short-arc lamps, or laser diodes, the diffractive throughput penalty is reduced or eliminated. The performance of micromechanical and liquid-crystal diffractive structures is analyzed using a realistic arc lamp model. Theoretical limitations on projector throughput and contrast ratio are derived for diffractive systems, and compared with polarization dependent liquid crystal systems.