First, what I want my system to do:
The machine will be connected to a TV and a surround sound stereo. After it's been configured, it won't be connected to a monitor at all. Ideally, it would connect to the stereo optically.

I was thinking of the Hauppauge PVR-250, some variant of gforce4MX with s-video out, a motherboard like this: http://www.newegg.com/Product/Product.a ... 6813131451, a cheap athlon processor, 160gb WD HDD, 512mb ram.

My biggest questions are:
-are there going to be any problems with the audio on a board like that? Problems capturing audio, problems with audio quality, etc.
-would it make sense to get the Hauppauge PVR-350 simply because the 250 doesn't have s-video out? (if I got the 350, would I still need a video card?)

So why does the board you (attempted to) link to only support the SPDIF co-ax? BTW - that link isn't useful for direct access. Try using price grabber or new egg.

The rest is probably fine, but some of the Via chipsets have DMA issues and I don't remember which ones that applies to. You'll have to search the forum for details but until you find information to the contrary consider it "not recommended".

Getting the TV-out on a 350 working takes a bit of effort. You'll probably want a video card available at least to test the rest of the machine. Motherboard audio is fine for most SDTV applications unless you're a serious audiophile.

My prime piece of advice is always, "don't be penny wise and pound foolish". If you're new at configuring hardware pick a "known working" configuration from the Tier 1 or 2 postings. This posting on the Wiki is a good starting point: http://www.knoppmythwiki.org/index.php?page=PickingComponents