Blu-ray is higher resolution, and includes uncompressed audio, so both video and audio are higher quality than the standard definition DVD. However, you need the proper equipment (HDTV, blu-ray player) to run it, and for it to make a difference in your viewing. Another issue to consider is cost of a blu-ray player and that many manufacturers and content providers have mentioned their preference to stick with digital downloads and their belief that blu-ray will be very ephemeral at best.
To the OP - I built a system that runs a blu-ray burner, and it's equipped with an 8800GT and Q9450. However, this isn't an HTPC, it's for video editing, thus the higher end processor and video card. Yes, that's how the information gets passed through. You don't really need a sound card, as there are lots of great motherboards with pretty high quality integrated audio. Most high-end sound cards I've seen are used to take the load off the rest of the computer for high-performance gaming, though nowadays it doesn't seem to matter all that much. And for audio editing and music production, anybody who takes themselves seriously would get a real mixer you can connect through firewire.
The best solution is a cheapie low-power dual core, motherboard with good integrated audio, and a video card like a HD 3850 or a 8600/9500GT depending on vendor preference. But I see you already have most of your components.
I prefer the Apevia QPACK2 for a case, as I've used it extensively for many builds. It requires MicroATX, which is my recommendation for a HTPC anyways.