I've kept a PC in my living room for the past three years as my primary home theater interface, and I heartily recommend it. It's shocking how cheap and easy it is to build a home theater PC these days.
I imagine that AMD’s acquisition of ATI improved the onboard video tremendously.
Jeff,
PCs are not exactly small. Check out this setup with the Mac Mini with WindowsXP MCE:
http://www.angryhacker.com/blog/archive/2007/08/20/the-death-of-dvd.aspx
I use something similar to this and it’s really quite, inexpensive and just works.
PCs are not exactly small.
Well, neither is my receiver… and I have to have that to power my speakers, etcetera. I figure an all-in-one box of typical “receiver” size is pretty easy to integrate into a living room.
Our HTPC is invisible the way it’s installed now; it is behind the door of a small cabinet that the TV rests on. The IR receiver is the only visible part.
If your TV’s resolution is 852x600, what do you need 1080p playback for?
Jeff, would you mind enumerating the other pieces / parts in your setup? Tuner card, HDD, etc. Also, lovin’ the case – where do I find that thing…? 
I love the idea, but what about sharing those videos over to other computers on the network? Like if I record say, Top Gear [On BBC America] then would I be able to watch it on my laptop, and not just on my TV? That would be my goal.
Also, could you save the files to a NAS, over say Gigabit-Ethernet.
Dygear: yes, and yes (I think). You can pick a storage location for recorded video.
I can double-click on the recorded video files from this PC over the network and play them back no problem.
Vista Media Center also has integrated DVD burning support, so you can burn any shows you’ve recorded to DVD and play them anywhere.
Not to sound like a Media Center advertisement, but other than the digital weakness (cablecard woes) it really is great, IMO.
If your TV’s resolution is 852x600, what do you need 1080p playback for?
You need to be able to decode the video at full resolution even if it will be scaled down later on.
I have wanted to do this for a long time, but I can’t think of how I can convince my wife to let me do something like this. Another remote, another interface to remember, and two kids to screw it up. I haven’t yet seen a ‘media center’ pc that can rival the old die-hard Tivo (in simplicity and user-interface). Have you?
I will upgrade our TV eventually. I’m sort of waiting for LED backlight LCDs to come down in price and go up in size… maybe this xmas?
Jeff, would you mind enumerating the other pieces / parts in your setup?
The dual tuner card is linked above (but fair warning it is a traditional full-height card so it won’t fit in the Antec Minuet).
As for HDDs, pick to taste. I continue to recommend a 2.5" HDD for the boot drive, because they’re so incredibly quiet and they sip power! Eventually I might move my entire config to 2.5" drives as prices come down.
http://www.angryhacker.com/blog/archive/2007/08/20/the-death-of-dvd.aspx
The mini setup doesn’t appear to record tv so it is a different animal. I had something similar that did record tv but the external tuner sucked so I switched to something like Jeff has. Much better.
I haven’t yet seen a ‘media center’ pc that can rival the old die-hard Tivo (in simplicity and user-interface). Have you?
I too loved Tivo back in the day.
http://www.codinghorror.com/blog/archives/000008.html
We ran Media Center and Tivo side by side for around six months, then eventually sold the Tivo on eBay. MCE is maybe 90% as easy as Tivo, but I consider that a HUGE compliment as Tivo is still the gold standard.
MCE is just so much more flexible and offers so many other options, and you give up very little in the way of core Wife Acceptance Factor.
MCE is maybe 90% as easy as Tivo…
I’d love to hear feedback on what we need to close on the other 10%.
SageTV is another alternative to MCE.
http://www.sagetv.com
I have a pc setup now thats very lean on requirements.
1.2G processor with 512 ram, 80G drive with a Hauppauge card.
It does a great job recording shows and supports HD.
Hate to tell you but I have better numbers with an off the rack $399 Acer desktop:
Proc: 5.9
Memory: 5.5
Graphics: 3.6
Gaming: 3.9
Disk: 5.7
Now to measure power consumption.
I too have had a PC in my living room for the past 4 years using MCE and absolutely love it. Wouldn’t go to anything else for a PVR.
Charlie, I looked up the case I have. It’s a Logisys CS688CL acrylic MicroATX model. Unfortunately these are not sold any more; you can only get mid-towers. 
http://www.newegg.com/Product/Product.aspx?Item=N82E16811148027
It’s very difficult to find good decent looking Micro-ATX cases; I recommend the Antec Minuet case as it comes with an 80plus certified efficient power supply, looks good, and Antec is pretty reliable for quality.
However, it does suffer from half-height expansion slots, so you’ll need to get a half-height tuner card. Hauppauge offers one, fortunately.
Does this mobo have IR built in or are you using a USB IR receiver?
For those that are AMD gunshy (like myself), I suggest the ASUS P5E-VM HDMI + favorite lower power core 2 duo. I’m using an E2180 (2.0ghtz, 1m cache) + 4g DDR2 + WinTV PVR 350. Onboard video is the Intel GMA X3500.
Now I just need to replace the TV card with one that has Vista drivers.