You can Hack your Xbox 360 easily to do just about anything. This includes hacking the remote, hack the Hard drive and the casing. Warning though: Hacking your Xbox will void your warranty. But you may want to mod it anyway since some of these mods and hacks prevent the rings of death. Plus those warranties aren't forever. You can even hack your Xbox 360 to play Netflix streaming movies! These mods are serious!
Once I bought my 360 I've been able to get rid of my home theater PC, my DVD player, and even my cable box, so that my entire entertainment system runs through my Xbox 360. It's convergence at its best. The 360 is not perfect by any means, but after hacking it, it's the best multimedia device I've ever used.
Installing a dedicated home theater PC under your TV is overkill for most people, especially if you don't want a big, noisy PC in your living room. But if you've got a Windows computer capable of running Windows Media Center (that includes either Windows XP Media Center Edition or Vista Home Premium and Ultimate) and an Xbox 360 that's already in your living room, you can use your 360 as a Media Center extender. That means that you get virtually all of the goods available in Windows Media Center on your living room TV through your Xbox. If you install a tuner card, your 360 becomes a full-fledged DVR. Even if you don't take the TV route, your 360-as-extender can play back music and stream video from your PC as well as provide access to other online content.