Yep, you'll need a full HDCP solution starting from the player. There's some work arounds that allow you to output over analog VGA but from what I read this fix is short-term and may not be supported for newer titles. But you'll need:
1) Blu-Ray/HD-DVD drive
2a) HDCP video card, preferably one that offloads 100% decoding to the GPU (HD2400 or better with UVD or G84 or G9X-based cards with Pure Video HD)
2b) A very powerful CPU if you have an older HDCP GPU with partial hardware acceleration
3) HDCP LCD monitor or TV
4) Software HD player (PowerDVD Ultra, WinDVD 7, maybe some of the others like AnyDVD or various free ones)
Typically newer/high-end rigs will have the necessary hardware on the video side, the sound side is a bit more complex. In order to get the highest quality sound for HD-DVD or Blu-Ray, you'll need sound to be carried over HDMI as there isn't enough bandwidth to carry uncompressed multi-channel audio over toslink/coax. If your receiver doesn't support TrueHD or DTS-MA, then s/pdif toslink/coax passthrough are fine and you'll get 1.5Kbps max DDPlus, DTS-EX etc.
Problem is, most sound cards don't have HDMI (not sure if they ever will), but video cards are starting to include them. The ATI cards have started putting HDMI on their parts and they're also supposed to carry the audio stream as well. I know the HDMI controller on the ATI cards is recognized as an audio device, but I'm not sure how well this works in practice. Again, not a big deal if you don't have a receiver that supports the higher-end audio.
You can also use your sound card to decode and output via analog if your card supports DD/DTS decoding, but then you'll also need your software DVD player to support multi-channel output. Unfortunately, the OEM versions of the included software DVD players typically do NOT include multi-channel sound formats and require you to purchase or upgrade.
Sounds complicated but isn't too bad if you have some experience with HTPC set-ups. As for the application, I recently purchased the LG combo drive and its been great so far. Plays both formats flawlessly although there is a problem with newer Blu-Ray discs where the menus aren't functional in PowerDVD. Cyberlink is aware of the problem and is working on a fix.
There's also various remote control devices you can use in order to get some remote control functionality out of your HTPC. I currently use my X-Fi's front panel and remote and it works pretty well, although I'm sure something like Logitech's Air Mouse or DiNovo with removable Numpad remote would work even better since they're programmable. A Harmony might even work if you already have some kind of PC IR receiver.
Highly recommend going this route for anyone who has most of the HDCP components required and wants a cheap alternative to getting into the HD scene. IQ in movies is simply incredible compared to SD and well worth it.