3) Yes, you need a honkin' video card for this system. You apparently didn't read the part about my "Radeon 9200" - two steps down from the current top-of-the-line, and it's barely keeping up.
Where do you get that the Radeon 9200 is 2 steps down from the current top of the line? There is the 9600pro, 9600xt, 9800pro, 9800xt, x600, x700, x800pro, x800pt, and more in between those that are all higher than the 9200 in performance. I guess my point is, you do need a good quality video card, but nothing top of the line as those are built more for 3d performance, which you would not be using in a HTPC.