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My hardware desirements currently consist of:

• Silverstone LC14MC Case
• Gigabyte GA-MA78GM-US2H, AMD 780G
• AMD Athlon 64 X2 5050e, Socket AM2
• 2GB DDR2-800 PC2-6400
• LG GGC H20L Blu-Ray/HD-DVD Rom Combo Drive
• BlackGold BGT3540 DVB-S and DVB-T tuner card
• Media Center IR Receiver
• 2 Hard Drives

I prefer two drives, but this is not essential. I like to separate the operating system from the media. I have found that the additional set-up steps is far out weighed by the simplicity to reinstall cleanly and quickly if necessary. As I said, I tinker, so occasionally I want to blast things back to basics with minimal interruption.
You could also partition a single drive for the same benefit, but I read somewhere that having a second physical drive for data read/writes improves performance.
Being that my HTPC is primarily a digital video recorder (DVR), this seemed to ring true.

I modified the case, replacing the hard drive indicator LED with one that runs from a COM port header. Just being able to visually see the operating mode as coloured light makes the unit feel much more like a set-top box.

This is connected to an AV amplifier via SPDIF and a 46″ 1080p HD LCD TV via DVI.
(Previous hardware did not have HDMI and as I didn’t/don’t need audio to the screen, DVI was fine - so that’s the cable in the wall. With hindsight, Not very future proof.)

Back…
On to the Operating system and drivers…