This is just a quick description of my XBMC system what I setup quite some time ago. The installation and setup is fairly easy, if you have some Linux background you do it in one evening.
The base hardware is a ZOTAC ZBOX ID42 with 4GB memory and a 320GB 2.5" harddisc. The ID42 has an integrated NVidia Ion chipset, which is quite decent (and gives you decent HD quality playback). You can see it a bit on the picture in the top right corner.
Then I didn't want to have yet another remote at the livingroom table and went for a decent Logitech universal remote. These are universal remotes, not that rubbish you can buy elsewhere. Their middle-range of remotes have a nifty feature called "activities" which makes basically your range of somehow connected TV "multimedia" devices be seen as just one device. It let's you define that Volume is your soundsystem, not your TV. It is worth the money, looks good and the quality and "finger feeling" is just awesome (as compared to any other remote I have ever used).
I nearly forgot, you certainly need something on your ID42 that your button presses on your shiny remote make something happen. FLIRC is the way to go. It is fairly in-expensive, but most importantly, just works with your remote. Its software is installed fairly easy and configured and then, it just works - again.
My ID42 has still Eden (version 11) of XBMC installed. Version 12 ("Frodo") just came out recently and has a huge range of features, like "Live TV". My theme is "Aeon Nox", which is the most configurable and beautiful them I could find. Please checkout their video demos, they are really helpful, as they explain how to setup it up properly.
I am nearly at the end of my setup, I don't think I have forgotten something. Maybe one thing, if you want to give XBMC a try, you can either try to use "XBMCbuntu", that's a Live-CD, what can be installed. Alternatively, you can give OpenElec a go, which is XBMC as an embedded system, very slick and slim - and the installation on a Raspberry Pi is done in 10 minutes - seriously! More on this another time.