I had played around a bit in the past, but nothing really caught my attention.  Well, after seeing MCE2005 at a friends I am convinced.  I wiped out Linux on my dual booting laptop and installed MCE2005 to play around.  I never thought a computer in my living room would make it, but since playing I've thought of a lot of reasons.  Here are a few (some obvious, others not so obvious):

• Storing DVD's on the hard drive for easy storage and retrieval. Also, with an xbox media extender this would allow viewing in other TV's in the house.
• Playing of my music collection in an easy way through my stereo.
• Showing slide shows of family pictures
• Used as a digital photo station for transferring photos off of my camera, and printing them.
• Quick web browsing and email
• All the other normal DVR type stuff

This pretty much replaces all of the tasks my wife uses her laptop for.  I asked her if she could see herself using this as her primary computer and she said yes!  I can't wait to start writing some plugin apps.  This is very cool!

Of course now I have to figure out how to build a cheap MCE.  Let me know if you've had any luck Robert.