You can improve on the player software: WinDVD 4 produces a better picture than Power DVD. Or try the ATI DVD player, which is also very good (the best, some say) ,but a bit unstable at times.
There are better soundcards than those made by CL. Try M-Audio or Philips for example. But if you think your current card sounds OK, stick with it. It's not
that bad
Remote Selector (
http://www.remoteselector.com ) is indispensible for a) making almost all software players region free, b) adds IR support to a lot of players and c) generating output for a external matrix display.
You can do away with Powerstrip if you are going to use DVI. Just download Rage3D tweak to unlock extra resolutions and features for free:
http://www.rage3d.com/r3dtweak/. Powerstrip programs your RAMDAC, but DVI doesn't use the RAMDAC.
My HTPC runs on W98SE. It's smaller, and has less overhead compared to XP. YMMV though.