It sounds like you're just looking for a basic computer for internet, email, word processing and the like. If your current system meets your needs, why not just install a new hard drive and some additional RAM? Both are very cheap upgrades. Your CPU should be fine. You can also add a DVD burner pretty easily. There are lots of websites that will walk you through opening the case and installing new components.
When you say something in HD, are you referring to a HD DVD burner, or outputting HD content to your TV? HD DVD burners are a little pricey still, and the final battle in the format war has not yet been won, although Blu-Ray would be your best bet right now.
Whether you go for the upgrades or a new computer, your biggest headache will be transferring files and settings. I'm not familiar with Vista, but Windows XP does not make this easy or fun.
If you have your heart set on a new computer I recommend that you check out Dell Outlet. They sell returned and refurbished systems for significantly less than new, with lots of stuff under $1000. I've bought many items from them and never had a problem.
Don't be too freaked out about hard drive failures. Although they do happen, it's VERY rare. As long as you back up your important information, it's only a minor inconvenience.
Hope this helps.
