Inexpensive Home Theater Personal Computer (HTPC)

Monitor:
http://www.newegg.com/Product/Product.aspx?Item=N82E16824236052
$189

Computer:
http://www.newegg.com/Product/Product.aspx?Item=N82E16883103266
$345

External CD/DVD drive:
http://www.newegg.com/Product/Product.aspx?Item=N82E16827135195
$50

HDMI cable to connect computer and monitor:
http://www.newegg.com/Product/Product.aspx?Item=N82E16812270228
$10

Now, if you already have an HDTV, you can skip buying a monitor and hook the computer up to your main TV as I have done.  This version of the Acer Aspire Revo includes the VESA mount so you could mount the computer on the back of the TV as well. 

Pay attention that the computer is the R3610 and not the R1600 series.  You will see the R1600 on sale in some outlets for $199 and be tempted but the processor is not fast enough and you don't get the full Nvidia ION graphics processor. 

This setup has worked very well for me.  Later, you can consider these add-ons as desired:

-  USB TV Tuner (then you can record live TV with Windows Media Center)
-  A different USB wireless keyboard and mouse to upgrade the included units
-  An external hard drive to use for saving extra music, recording TV shows, or backing up data
-  An SD memory card to use with ReadyBoost in Windows 7
-  A Windows Media Center rated remote control (especially handy if you install Boxee to watch Internet based content through Hulu, YouTube, etc. - http://boxee.tv/ )
http://www.newegg.com/Product/Product.aspx?Item=N82E16880121003

The computer includes built-in wireless adapter which has worked very well with our Netgear Wireless N router.  However, if you can locate the computer near your Internet modem, you might as well use a wired connection.

Regarding software, just a few recommended actions:
1.  Uninstall the Microsoft Office trial and any other included applications you don't want or need.
2.  Install Chrome, Adobe Reader, and Spyware Doctor using http://pack.google.com/
3.  Get Microsoft Security Essentials from http://www.microsoft.com/security_essentials/
4.  Install Flash 10.1 from http://get.adobe.com/flashplayer/ to take advantage of the computer's GPU (Graphics Processor Unit). 
5.  Get the hardware driver updates for the graphics through Windows Updates.  Look at the optional updates.
6.  Set Windows Media Player to rip your CD music to highest quality MP3 and start build your collection of music to use with Windows Media Center.  You could use iTunes as well if you prefer.
7.  Get http://boxee.tv/ and the cheap infrared USB remote control and add me as your friend on the Boxee network.  Boxee pulls together your local music, pictures, and videos to be displayed using your remote control like controlling the TV.  It pulls Netflix, YouTube, and hundreds of Internet video sites together for easy viewing.  This is way more fun than cable. 

While I do have a USB TV tuner hooked up and did set Windows Media Center (WMC) to record Seinfeld, Star Trek, and OPB content, I'm not happy with the quality.  The playback options for the DVR (digital video recorder) functionality in Windows Media Center is actually better in many regards than Comcast for skipping through commercials.  At this point, we are content with accessing streaming movies through Netflix using either WMC or Boxee.  You can even get a little plug-in that adds Boxee to the Extras menu in WMC.  At that point you don't need anything more than the remote to use either, but I still Alt-Tab out to the desktop and browse the Web. 

Hope this helps get a few people who have asked me recently going with their own HTPC!  Enjoy!