I have setup a few htpc's over the last year, and i have found windows MCE to be fussy with hardware, and greedy with recources.
In your case, you can use your hardware, but i would reccomend you use Mythtv, which is free linux based PVR software. As long as you get a graphics card which supports XVMC (a nvidia 6200 will be perfect for this) and a card with onboard mpeg encoding (hauppage pvr 150).
With those, your pc will be a very good full functional media centre, as you will have very little strain on your CPU, unless you start transcoding recordings to divx-xvid, which is optional and can be done on your pc. It will just take longer.
I honestly dont think you will get anywhere with those specs on Windows, and if you do, it will be very limited. There are plenty of people that run Mythtv on slow hardwear, and it still works effectivly for them.