A fairly quiet Core 2 Duo PC (with fanless graphics card that accelerates 1080p video) is hooked up to the HDTV via DVI to HDMI cable and optical digital audio cable for 5.1 surround sound. It’s controlled from the couch with a wireless mouse and occasionally, a keyboard. Here’s what software I use for different media viewing:
Miro for video podcasts like Tekzilla, Chikara, HD Nation, AppJudgement, Pod Surf TV, CommandN, and others
AlbumPlayer for streaming my FLAC music library from my Windows Home Server box
Minilyrics embeds into the interface.
Boxee for playing movie and other video downloads
It does a nice job with multi-channel audio and subtitles for my wife.
MAME for classic arcade games controlled with wireless X Box 360 gamepads
If you have any questions, I’ll be happy to talk more about the HTPC setup.