If money is not an issue you can go for the ASRock Vision 3D. It's an all-in one PC built specifically for this purpose, in a cool metal case. It has the size of about two Mac Minis stacked on each other. It comes with a BluRay player, THX sound, and an Nvidia card that can do "3DTV" (stereoscopic with silly glasses in other words). Only downside is that it doesn't include the OS so that's extra on the price. You should use Windows for the BluRay anyway, but player software is included. The same company has lower models too (the Ion something), but haven't seen them "in the flesh".

Another option is to use a Mac Mini. Pros are the small size, simple setup, and you can do more stuff than an Apple TV. Minus is that you need to deal with OSX which can be annoying if you always used Windows. Some software is the same as Windows though (e.g. Firefox, VLC).

A cheaper option but keeping in the small form factor would be to use a Mini-ITX motherboard. I used one of these long time ago (2002/2003) for my own living room PC. It had a Linux system at first with an HTPC software (MythTV). It was pretty ok but in the end the case suffered from overheat and the system would hang randomly. I tried a few things, including installing a crazy little fan that was extremely noisy (not much choice in the form factor) but after all I gave up and ended up using the PC as regular computer (with the case open and a "real" desktop fan next to it!) until I got a decent laptop at the end of 2003. Probably current systems would fare better, but it put me off of getting off the shelf components for this purpose.

If you give up the small form factor then it's mostly about building a regular PC, but you will want the following parts at least: a decent graphics card that can output HDMI, a decent CPU to rip DVDs, and at least 500GB to have room to store stuff. In terms of software, Windows 7 has a "media center", or for Linux you can try MythTV. Then you can use VLC for video playing (except for Bluray which needs dedicated software).

One last note is you may want to get a wireless keyboard with integrated mouse. Long ago I had an IBM model with a joystick mouse that I liked a lot. It died due to battery leakage after I left it idle for long time :-(. Recently I got one from a Chinese(?) brand which I never heard before, but the design is pretty decent: the Rapoo 2900




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