Welcome to the world of HTPC. Hope you are a patient person. If so, you will enjoy the final outcome. First piece of advice is to take a look over at the
AVS HTPC Forum. There is more information over there about HTPCs than you could possibly want.
Now, to your questions:
1. Take a look at the
Chaintech AV-710. It has digital out, can process 7.1, and it's you cannot beat the price. It's well thought of over at the AVS forum. If you want to invest a little more, the M-Audio Revolution 7.1 is also well thought of. Many go the SB Audigy route, but I found them to be pricey and not have the exact interfaces I was looking for.
2. As far as archiving movies go, that's a large question. First of all, you need to have the processing power to run the movies....not as much an issue until you get into the HD realm. You need a ton of HD space, as movies take up a big chunk of space. You need a video card that can output in the format you require (ie S-Video, although component via comp-VGA adapter or DVI is going to generate better picture quality). You need to have a monitor (TV, Projector, etc) that has better than standard TV resolution. Normal TVs do not have enough pixels, so the PQ looks very poor when feeding it a PC signal. Plus, it's not necessarily good to feed a normal TV a PC signal. You need to get into the different movie ripping processes (see the above forum). You need a multimedia app to display the movies, such as ZoomPlayer, WinDVD, PowerDVD, or TheaterTek. Windows Media Player has come a long way, so don't rule it out anymore. Plus, you'll need it when you start looking into HD DVD discs, which require it.....and you will.
I know that's a ton that I threw on you, but it's a pretty large topic. Feel free to continue w/ more questions. There are a few of us here that are into HTPCs.
Good Luck
