My HTPC is also the main PC for the house. I have a 50' HDMI cable run to the TV and set it up as Extended Desk Top and an Optical cable to the receivers. Also had to run a USB cable out their to run the remote receiver into. The set up works great, in reality it is not very often that we ever need to use the PC while watching a movie off from it. And if we need to we can because the PC has the power, the biggest thing is you have to keep hitting Alt Tab to get the mouse to come back to the PC screen. Also you have to switch your audio device from the optical that goes to the TV back to the OC speakers if you need sound at the PC, again not a big deal.
As for ripping all of our DVD's and Bluray is stored on an UnRaid server. I rip the DVD's with DVDFAB, it lets you pull just the main movie and Audio tracks that you want. This gets rid of all the menus and crap, when you hit play the movie starts right away. I just rip to folders, simple and easy no other converting, hard drives are cheap.
When you have your TV on as the extended desk top and launch Vista Media Center (which can be done with the remote, no need to tuch the PC) it comes right up on the TV. My Movies integrates right into Media Center, select the movie you want and hit play. I didn't use any third party player, just whats in media center. Too me it is better quality then our stand alone player was so I don't know how much better TheaterTeck can be.
Also their is a program called Transcode 360 that I think is suppse to transcode DVD from folders on the fly when you want to stream them to your 360. I was going to try it but haven't got around to it yet.