I have been using my iMac 20inch as a HTPC for over two years now.
My current setup is:
Audio Paths:
Media Room:
iMac (iTunes/sBooth Play) - CA DACMagic (via USB) - CA 650A - Mordaunt Short Aviano 8
Living Room:
iMac(iTunes) - Airport Express - Sony HiFi All in One. This one is for my family (mostly dual played along with my main setup).
Video Path
I am yet to find a video streamer which fits my needs (still holding out for the next Apple TV!). Hence the iMac is directly connected to my TV via a long cable. The TV is my secondary display - iMac is able to recognize my Panasonic LCD and is able to drive two independent resolutions.
iMac (Plex) - TV (via a mini dvi/dvi/HDMI path) while the audio is multirouted - front channels to the CA above while the back, center and sub is serviced by an older Sony HT (output taken from the rec out of the CA).
Remote
I use the apple remote and an iPod Touch (Remote, Hippo Remote apps). This is easily the best part of the setup - lets me control everything remotely.
Comments:
This setup works well for me. Plex gives me flexibility which otherwise will be difficult to achieve in a dedicated device like WDTV. Play gives me bit perfect audio output for serious listening. My iTunes is the audio center (use a lot of smart playlists e.g. 4+ star songs by Raveendran not heard (listening is tracked and synced from my iPod as well) in the last one month). One has to spend a little time fiddling with the sound/audio settings esp the audio midi setup and the sampling rate.
The perian codecs add support for the missing video formats. I occasionally use XLD to convert from FLAC to wav for the iTunes import. I use Play for direct FLAC play.
It also helps that the iMac is noiseless.
Overall, this has been a satisfactory setup for me. I may switch to a mac mini or Apple TV when it starts making sense to me (mac mini - less price; Apple TV - 1080p playback + codec extensibility). I admit to being tempted by the new 27 inch quad core LED IPS mac!
Final recommendation - Go for it!