One & Co is a design and engineering firm in San Francisco, the type that frequently get contracted out by big companies looking for fresh ideas.
Their "Microsoft Living Room PC" Concept looks so hot that I wouldn't even mind having a PC next to my TV or sofa if it looked like this.
(I don't know quite what's going on in the second image -- if that's a Bose-style speaker wall with a teeny-tiny screen on it, they should really add a bigger screen :)
Most people say that what is holding back the home theater PC from the mainstream is the ugliness, noise, and general unstable nature of PCs. If MS could find a manufacturer to sell Media Center PCs like this, I'm sure they'd have an easier time getting people to try them out.