AVS Special Member
Join Date: Apr 2000
Location: W Simsbury, CT, USA
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XBMC can play DVD .iso files, including menus. You can buy a used classic XBox for about $60 and it will be a great machine with the best UI around.
If you need high-def content, you can go with an Acer AspireRevo for $200 and use XBMC for Windows coupled with MPC-HC for high-def content. That's what I'm finishing up right now. PowerDVD 8 (included on the Revo) should be able to play a mounted Blu-ray .iso file, but I haven't gotten around to trying that yet.
I'd much rather watch a great movie in B&W at 240 lines of resolution than a lousy movie in 1080p with lossless audio.