The only real problem I have is finding a compatible Blu drive. Looking on Newegg all I see are Sata and a USB external.
I noticed some slimline drives online stated that they were compatible with IDE, but I don't know anything about those drives so I thought I'd ask. I have a PCI Sata adapter I bought a while back to adapt a SATA HDD I purchased (my mistake), but I've never tried to hook up an optical drive to it.
PowerDVD 9 is a good option since you have an ATI card, it fully supports AVIVO HD decoding. I have to say my project was similar to yours, take real old parts and convert it to an HTPC. The HIS HD3650 is one of the best GPUs I've ever owned lol, it handles Blu-ray, has built in 5.1 Sound and comes with a DVI to HDMI adapter.
I was planning to buy the Sapphire version, I contacted the Sapphire support, but they said that their 3650 can't output sound but can outputup to 1080p with the adapter. Unfortunately the Sapphire doesn't come with any HDMI adapter, therefore I had to buy the HIS one. The HD3450 is also a nice choice for HD playback, its still has UVD so it'll decode fine.
Are you using the HD 3450? I have the HD 3650 and a MKV or Blu-ray H.264 files plays smoothly, and I have a 2.40Ghz P4. Refer to this tutorial for DXVA help . Great tutorial thanks to the person that created it! '