Oh boy, this is so my thing!!
I was introduced to Windows media centre a couple of years back & like you Mr. T, I could immediately see the benefit of getting rid of all the boxes in the front room. I started with XP media Centre & now I've moved on to Vista Media Centre (VMC). So, here's the skinny...
First of all, the general stuff. XP is a fully supported os. Therefore, pretty much any upgrade you drop into your XP box will work straight away. That is not necessarily the case with VMC. There are problems with sound & TV cards in VMC, although this is easing with time. Remember when windoze 2k gave way to XP, the sitch was the same, so ignore the doom/Linux/open source bitter freaks. Media Centre is GREAT!! Whatever flavour you have.
To answer your q's...
(1) Yes you can. And if you drop in a dual TV tuner, you can watch one show & record another. Either way, you can record in the background & do music, pictures, video, online, whatever. You need to decide on digital or analogue as XP MCE & VMC don't support both simultaneously.
(2) Yep. Press the green buton & you're off. Kiddy play. Outside of VMC it's trickier as it's new(er) & a few techy tips help. Essentially, the single biggest help across the board is to avoid getting involved in codecs & codec packs except for FFDshow Tryouts. That will run all video, Audio & TV in either version. If you do nothing else, get FFDshow tryouts. Ignore Divx & all the others. This is THE one to have. XP MCE comes without a TV dedcoder, so you will need to acquire one to view live Tv. I recommend Nvidia pure decoder. VMC comes with an MS decoder, I would still get the Nvidia one. Otherwise, it's all good baby.
(3) Not sure, I don't extend (!) I have heard that for fat data like TV, wired networks are essential, but It's not my bag.
www.thegreenbutton.com is the place to suss that out.
(4) Er... done that. XP is mature & easier to work out. However, remember that Vista will install almost all your drivers when you switch it on, whereas XP will require you to work out what's missing & spend half a day getting all the hardware to work. Otherwise, it's windows, so it's easy innit?
Essentially, it's horses for courses. I personally prefer VMC. For my twopenneth, I have a 26" LCD screen & VMC with internet & email too - basically a whole system controlled with one remote, 5.1 surround sound pictures, video, Freeview TV, 1000+ albums, a dozen or so movies, 5 series of Family Guy, every episode of Trailer Park Boys & a Personal video recorder with 1 TB storage & I built it for 600 sheets. not bad really. It's the 2nd one I've built & I can't imagine any other way of doing it, short of a media server...which I am considering...
Pm me for any specifics. I'd be glad to spread the word.