OK, I am leaning toward using the existing computer as an HTPC with an XBox 360 extender in the living room. I will network it all with Powerline and hook in an OTA HD antenna via the HD Homerun dual tuner device. I am also going to buy a bigger monitor for that computer so I can use it as a TV and watch something different than what is on in the living room.
One thing that kept me up last night: Let's say the wife wants to watch live TV or a recording of some stupid reality show, and I want to play some Skyrim or maybe just surf the net on my PC instead of watching with her. Is the effort of pushing video to the XBox in the next room going to use up huge amounts of processing power/RAM so that I won't be able to to anything else on the PC? Does the XBox take on some or all of that processing load?
As a reminder, the current system has a Core 2 CPU 6600 @2.4GHz. 4GB RAM.