Mission Impossible... NOT!
Hello there little fella dspgandalf! Well, other than Mr. Zen everything else wasn't helpful at all...
So, I just had to post because I'm here to tell you that what you want to accomplish it's doable and very easy. I went through all that myself not too long ago when I had a Dimension 8300. I used that PC as my main rig from 2003 to 2009 and it was on that last year that I decided to turn it into a Media Center ''box'', and boy it really was worth it...
It's original components were as follows:
-Dell stock PSU [350w]
-P4HT 3Ghz [Northwood]
-GeForce FX5200 [AGP]
-512MB DDR400 [Single Channel]
-80GB 2MB HDD [IDE]
Well, that wasn't bad at all considering it had XP Home... but, if I wanted to playback Blu-Ray movies and store a bunch of 1080p videos and expect it all went smooth and not lag or anything, I knew I had to really upgrade my baby. Well this is what it ended up with when the project was done;
-Radeon HD 4650 [1GB]
-2 x 1GB PC3200 RAM [Dual Channel]
-250GB 8MB HDD [SATA]
-and of course, the Blu-Ray drive [Lite-On iHOS104-06]
Everything else apart from those was left stock (cpu, psu). I knew my Northwood would be enough at 3Ghz and I knew I would probably need a beefier PSU but I wanted to try with 350w first and it worked really well always. I installed W7HP32 and PowerDVD 10 on top of all that and I had a pretty cool Dell PC (it was no longer a lame 8300 lol).
Yes I know, you always have to spend some bucks if you want new features and/or better functionality but, don't think I did all that in a day - it took me around 3 months to pull it off (I'm not rich you know

.
The only problem I can foresee in your particular situation is that a 250w PSU may be to little juice for the whole thing, and you WILL need to upgrade to W7 because at least when I was dealing with that at that time, Blu-Ray players didn't work with XP, only Vista and W7 recognize them. AND if you can, find a P4 of at least 2.8Ghz but it's not that crucial, more important it's the VGA which would be a Radeon HD 4650 or 4350 - those are your salvation. Also, get at least 1GB of RAM (333Mhz or 400Mhz) and try to make a "dual-channel" setup [2 x 512MB].
...Wow, I never thought I'd write that much, seems like I really wanted to help lol. Oh well, I hope I have somehow helped you my net-bud. Reply if you want, I'll be on touch. And thanks also to Mr. Zen for his also extensive contribution to yet another thread... OK, bye byes!