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It's so much easier to find answers when I know what questions to ask, thanks Persius. Off to google I go to research HTPC 
Do you have surround sound? What video and audio cards are you using if so?
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Yes i have surround sound via an optical to my 5.1 system. I bought a new motherboard which already supports 7.1 audio with optical inputs/outputs.
For my video card, on board motherboard do fine for HD movies. I use the HDMI out it already includes. Its a ATI HD onboard videocard.
Unless you want to play games or do crazy video rendering then buy a videocard. otherwise watching 1080p mkv files works fine for me
(4GB ram btw)
i have gigabyte motherboard one of the high end ones *just bought it.
Someone above me posted a Antec Fusion 430 case That would be perfect to build a HTPC in, throw in BOXEE & XBMC and your set. With the option of being able to browse online and do everything with a pc. You can also get a wmc remote so you dont have to use a keyboard or mouse for browsing your media library.