I have an HTPC and it's a love hate relationship. It's nice to be able to consolidate everything into a single device (I'd recommend the media live diva motherboards, and then you can ditch the separate audio receiver, as well as instantly solve the crappy surround sound audio of pcs with games not doing dolby digital, and the hardware not able to output truehd), but so many things don't work well, or at least not all together.
Blu-ray playback is nearly hopeless on HTPCs. Your best option is the $100 PowerDVD9 Ultra, on top of the $100 you paid for a bluray drive. You may as well just get a stand alone player for $100, which may even include streaming netflix, pandora, and youtube.
Windows Media Center is a glitchy piece of crap with suspend/resume problems, codec issues up the the wazoo, and general problems. I'd recommend MythTV over it, but then that's Linux and you'll never play Blu-ray or streaming netflix. Windows Media Center is horrible at upscaling SD content too, and not great at playing back HD. WMC is the best option for live TV however, since little else focuses on it. However, until cablecard support is actually available on PC, tv support is nearly worthless. MythTV works better, but you have to pay $10 a year for guide data. Antenna/free HD stations aren't bad (and the rather awesome hdhomerun integrates well into a lot of programs, even ones that don't normally support TV), but all the content can be found streaming online (at lower quality and a bit of a wait).
Boxee and XBMC are fantastic with torrented content, and Boxee integrates nicely into quite a few streaming video websites. Unfortunately, Hulu continually clashes with it, but eventually it's supposed to have support for both Hulu and Fancast (comcast's attempt to kill internet streaming video by tieing it to your cable account) working well.
There's no unified, good interfaces for PC games or emulated games. Also, putting in a high end video card to handle games means you lose the aesthetic appeal battle, as any media center larger than itx size is just ugly and out of place.
And an HTPC is a computer, so it's going to have problems and annoyances. You could just use it with a normal PC interface, but that's ill-suited.
My current HTPC setup is as follows:
Running Windows 7 (if it wasn't for games and blu ray, I'd be running Linux)
Have PowerDVD9 set up to automatically run when a blu-ray is inserted. (ripping blu-rays with something like windvdx is also acceptable, if you have the space)
Windows Media Center runs in the background (automatic feature of windows), purely to record shows I'm interested in. I then have to manually convert these shows, as WMC uses a format that only it understands. I could just play back the files in WMC, but it sucks at upscaling/playback and is a glitchy piece of slow crap.
Boxee is my primary interface, it works well with netflix streaming and content stored locally (including those converted recorded tv shows). Hopefully soon they'll get Hulu and Fancast support worked out.
Use a logitech wireless keyboard. Use 360 controllers for games. Use a regular Xbox controller hooked up with a USB adapter, custom drivers, and XPadder to emulate a keyboard/mouse for games that don't support 360 controllers. Have a Gyration Media Center remote, and I'd recommend it as a must have for any HTPC. Not only is it the best wireless gyration mouse I've used, but it's also a universal remote. Do yourself a favor and get the one that has a built in LCD screen for managing your music libraries without having to turn on the screen.
Wasn't sure what I wanted at first, so I got an ATX case that's been designed carefully to be about the size of an matx case (only supports mid range vid cards though). Honestly, if I did it again, I'd either go media live diva (and thus get the built in receiver, anyone know if that can be bought separately and what kind of power supply you need?) in an matx case, go itx, or go for a shuttle xpc, which is basically itx size with full size video card support.
I also have:
A DVD player that can playback DIVX files burned to discs. It is too much of a hassle to burn content I want to watch.
A blu-ray player with built in netflix and pandora streaming. It was only $100, and due to its picture quality and ease of use has basically taken over for dvd/bluray watching and pandora streaming. I sometimes use it for netflix, but the netflix and pandora streaming on it require you to go to a computer first to add movies/stations.
I'd say go with the PS3 if your primary goal is playing games and watching Blurays.
Go with a modded Xbox (original) running XBMC if streaming downloaded content and playing emulated games is a concern.
Get a TIVO if you want a DVR.
Get a Roku box (they're pretty cheap) if Netflix streaming and Amazon on demand rentals (they have pretty much all new releases) appeals to you.
Get the Boxee box if streaming web content and streaming downloaded media appeals to you.
If you want to integrate many things into one imperfect device, get an HTPC. Though given the cost of bluray playback software and its sorry state of integration, getting a bluray player of some type to supplement an HTPC wouldn't be a bad idea.
And once again, until cablecard support emerges (and it's going to be expensive), a Tivo is a better DVR.