Plenty of people do it. It doesn't violate any laws or rules, same as video taping is legal for personal recording. The content industry of course, as well as the networks, are pushing to make laws and technological and contractual requirements to make it impossible for you to skip commercials, and morally it's up to you whether not watching the commercials is okay since commercial advertisements are what pay for the content to be created (most of what you pay to the cable company is for the cable company's network and equipment, it's not paying the content creators).
A P3-700 is technically capable of handling the task I think, but not very well. You probably wouldn't want to try to watch a TV show at the same time you're recording another one, even with a TV tuner with a hardware encoder. If you used a cheaper tuner without hardware encoding, that CPU is going to be under a pretty heavy burden and you definitely won't be watching while recording, and recordings won't be very high compression or resolution. Your All-In-Wonder of course HAS a TV tuner on it, but it does not have hardware encoding. It should also have come with basic TV watching and probably very basic "digital VCR" type software.
Depending on how much recording you do, even an 80GB hard drive can become too small pretty quickly. With such a slow CPU, encoding the TV immediately with high compression will be harder, so you might end up having to schedule it to be done later, after the recording is done. It'll still take FOREVER to do it, so if you have recordings that are scheduled shortly after one another, the CPU may not have time to complete a transcoding/recompressing task before it has to do another recording, which means you're building up more and more large files. 40GB seemed plenty large to me at first, then I realized when I went on vacation I'd very easily have too many recordings that the system wasn't able to transcode soon enough, and even if it could, the system would be having to compress very heavily to fit them on the drive. I ended up with a 250GB drive, and at low compression and high bitrates I managed to almost fill it up over a weeklong vacation.
HDTV recording I believe REQUIRES a much higher CPU speed than you have. At the very least, playing it back is going to be hard on the system.
If you have a digital TV service, or anything with a box (cable, satellite) then you'll need a hardware capability to change channels on the box. Some tuners come with an IR emitter that you can program for certain cable boxes to let them change the channel, some cable boxes allow a serial port to be used; otherwise you have to always set the channel manually before any recording.
Look around in the video forum here, and some of the others, and use Google. There are lots of websites dedicated to home theatre PCs and PVRs specifically.
