Western Digital TV Live
Can be connected to your current computer via networking, can output full 1080 via HDMI, upconverts, runs just about any format you throw at it, the size limits is only based on how many hard drives you want to buy, small, quiet (no fan), can be controlled via a Logitech Harmony remote...
Hackable, cheap, small, easy. Has the resources to connected directly to YouTube, and maybe Hulu (don't know if that's fully implimented yet).
It will work better than a computer sitting next to your TV.
WD TV Live HD Media Player ( WDBAAN0000NBK )