What do you guys do for audio?

To me the whole idea of an htpc is to control my home theater setup so I'd go with the receiver option. I picture it this way: if you're running a monitor/smaller sized lcd and 5.1 computer speaker system, then you don't have an htpc, you have a pc. My advice to you is to get your entire system setup, audio/video components and all, and then worry about your htpc.

Also, I get that you have a small space, so when considering your audio setup you'll probably want to go with smaller sized speakers or satellites. The major advantage of going the receiver/speaker setup is that you can expand on it. Think about it, if you buy an all in one computer speaker setup then you just stick with that until you're tired of it and feel the need to upgrade. However, with the other route you get to upgrade gradually, and this will probably work to your advantage, unless you have immense amounts of money. Trust me, I started with a much crappier system than what I have now, but I worked my way up to a pretty respectable one. Good luck.

In the main system I use a 7.1 audio setup with a Marantz 8001 AVR, two Classe Audio power amps (one for the fronts and one for the center), the AVR covers all the rear surrounds. Three power subs, one Deftech 15" and two Mirrage 8"s. The room is a med large size. The AVR is feed via anilog from two HTPCs with X-meridian and Inferno sound cards.

2nd HT setup uses a Denion 4800 AVR with 7.1 setup with a X-plosion sound card with Mirrage speakers all around.

I even use a Yamaha AVR in the bedroom setup,for 5.1 with a bunch of Axion M3 speakers and centers and another Mirrage 8" sub.

Even my gaming setup uses a Sony 5.1 setup feed by a X-Fi Prelude.

Never found a "PC" speaker type setup produce the best sound, IMHO.

I've no stand alone player and all my contents are control in HTPC and server. I recently upgrade from ATI 3650/SPDIF/2 channels to 4850/HDMI/8 channels LPCM to my Onkyo 885 pre-amp. Krell KSA 200S for front 2 channels and Krell KAV 500 for center and rear channels.

Don't butcher a blu-ray picture with a set of computer speakers! Get a sound setup that matches that kind of picture quality. A real receiver/amp and a set of real speakers are the way to go. Start out small and work your way up if you don't have the money. That's how lots of us got to the setups we have now (me personally, a mid-range Denon with Deftech speakers all around). IMO, this is the most important part of the home theater setup.

I would stay away from the klipish pro media ultras. I went through 3 sets dating back from the original 500 watt pro media speakers. They all still suffer from the same problem with the Bash amp. They sound great but anywhere from 3 months to 1 year the resistor will burn out causing the sub not to work. Its sad too because the are probably the best sounding computer speakers on the market.

I agree with going with a real set up over computer speakers. It is really a night and day comparison.