Ahh, the HTPC!
Have one, and I LOVE it. And I agree with Drew... make sure you have the power. I upgraded my gaming 'puter so I robber the parts from that for my HTPC. I'm running a Intel Quad Core Q6600, Nvidia 8800GT vid card, and an Auzentech sound card. I'm looking into the new Asus HDAV1.3 video card with HDMI output for trueHD sound, something you cannot get over SPDIF optical output - only component out. You'll be good with DVI outputs as well, as the only real diff between DVI and HDMI is HDMI can carry sound as well. There are a ton of adapters to change from DVI - HDMI. Mine works great. There are a number of things to look at tho, before you get too deep into it.
Case- if you are adding this to your Home Theater setup, a typical computer case will clash! Get something that blends in with your other components. I have an
OrigenAE X10 case and it's the shiznit.
Storage - if you plan on ripping music and movies to disk, go big. I have 3.5TB of stotage and it fills up fast
disk drive - if you're going this far, might as well throw in a bluray player... NewEgg has a number cheaper than a standalong unit.
input - There are remotes that work with computers, but I went with an RF keyboard, with a trackball in it as opposed to a mouse... much easier for selecting stuff easily.
Sound and Speakers - I have an Onyko stereo that has 3 HDMI passthru points... I have computer on 1, cable box on 2 and Xbox360 on 3. All going to 5.1 sound and damn it's awesome! my room won't easily support 7.1 or I'd be there.
Software- you'll run into a number of issues here, one of which can be a real pain.
Copy Protection on disks, and the lameass HDCP compliance issue. Everything on my system meets the compliance part but I still got playback errors with disks (mostly Sony). A WONDERFUL program to circumvent this is AnyDVD HD - it bypasses it and lets you play pretty much anything on the HTPC
Movie playback - nuts and bolts of HTPC! PowerDVD was the standard, but they have slipped. IMO Arcsoft and TotalMedia Theater is the king... for a few reasons, but the biggee for me is playback from hard drive. PowerDVD stopped that feature a few revisions ago.
Movie cataloging - look at MyMovies2. In Windows XP or Vista it acts as a Media Center front end that aloows you to browse your movie collection (on hard drive or on disk) and start the movie with a simple click
Feel free to PM me for more... I've spent a lot of time putting this together and making it easy for the wife to use.
edited to add stero info