Cheap HTPC?

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A friend has challenged me to build a media PC for a max of £150, it needs to be as close to silent as possible, play HD movies through HDMI, have optical out for audio and the case has to be roughly the same size as a standard AV-R, other than that there is no limits. Lucky me!

I figure the way forward is second hand and to use XBMC on Ubuntu, we've already discussed and he's fine with ripping his movies on his other PC to save on buying Windows + Blu-ray software for the HTPC until some way for playback is made on Linux.

So does anyone have any advice, I've vaguely looked into building a HTPC for myself but decided against it, that was a year or so ago and I'm not sure what is available to me now. Would an Atom + PCI-E card suffice, is there even a cheap board with PCI-E x16 and optical out? A C2D and mATX board?
 
I'm not sure how that'd go down because of the size and lack of optical bay, I guess he could mount the Revo almost anywhere at the size but I think the plan was to move his Blu-ray drive from his main PC to his HTPC when Linux had native playback capabilities to save having to constantly rip them.
 
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