I have that same computer, and I love it. I did upgrade the video card and PSU (they were free replacements from another PC), since I use it for gaming. The GPU that comes with isn't the best, but it is a lot better than on-board video. It should be fine for watching movies.
The sound card is built in, but it does have a toslink connection. It might be good enough for HT duty. I don't know how hard core you are about that sort of thing, but I'm satisfied with it for gaming purposes.
If you plan on ripping a lot of your BD/DVDs, 1TB should be plenty of room. I installed an additional 1.5TB drive, but that was another 'free' upgrade from another PC.