Extremetech has a nice article on how to turn your computer into a HTPC for free.

The term “Home Theater PC” (HTPC) is rather ambiguous. A simple file server loaded with videos and music would let you play back media from any node on your home network, but you’ll probably want a bit more than that out of your HTPC.

HTPC machines are commonly used to play and record streaming media (usually from the Internet or cable TV), host media from static sources such as DVDs and CDs, play back the hosted media on both a TV and other computers, and manipulate that media in ways that we aren’t conveniently able to when using traditional devices. That last bit encompasses automatically skipping commercials, pausing live TV, etc.

HTPCs are usually connected to TVs for video output and use IR remote controls for input. Most HTPC software goes above and beyond this call of duty by also integrating slick interfaces to programming listings, games and emulators, photo slideshows, and even web browsers.

Read Complete Article Here:

LiveCDs and Pre-configured Distributions
Networking your HTPC
HTPC Tribulations
Putting it all together

All Credits to Extremetech.com for this.