I just did this with my spare parts. He didn't say he wanted recording abilities so the 1ghz Celeron route is a nice one. I used my XP 1600+ and while the setup is quiet for a computer I soon came to realize "computer room noise and living room noise are two entirely different things"
It's noisy for a living room device. Still working on that. I do record with mine though so even the current CPU is too slow.
Which is why I used a 5400 RPM drive in mine. Never hear it.
Suggest either a Matrox or ATI card with TV output. nVidia will work too, but the general concensus is the video quality is better with Matrox or ATI. I picked up a used Radeon 7000 for my box, no fan, no noise, no worries. Should compare it to the TV out of the 9700 here, but I suspect they're the same.
Hooking up to the AV ports is as simple as getting a RCA to 1/8" stereo cable. Or a couple if you're doing surround, etc. 2 or 3 bux anywhere, about the same as regular RCA patch cables.
Buy your ROM drive locally so you can take it back if it doesn't work. I tried three different drives I had here till I found one that I was happy with. One would shoot up to 52x and then the movie would stutter as it slowed down, then it'd shoot up to 52 again. Very noisy and make the video jumpy, ruined the 'play from disc' aspect. If it was just Divx/other CD formats it's easy enough to just copy to the drive, but where you're doing DVD too keep this in mind with the drive choice.
A cordless keyboard/mouse make the whole Computer as a Player experience sooooo much nicer. Mouse anyway, kb not so much.