I like Small Form Factor (SFF) machines. I own two at home, though both are retail-type and not DIY builds. Though the case would work just fine with DIY builds, and I've spec'd parts many times in the past for a SFF build.
The power supply in both are Mini-ITX power supplies, and they can be found readily on Newegg (10 of them on Newegg right now, including a number of 80Plus certified models). Modern motherboards with integrated video usually run very well, as long as you're not gaming with it. They'll play HD video pretty good, assuming you have a good processor.
Our newer SFF is a Dell Inspiron 660s. I really wanted to build my own, but I just couldn't justify it. We bought this 660s at Best Buy for 300 bucks, and it has onboard Wi-Fi (no extra USB dongle required), HDMI out, SD/multi card reader, and two USB3 ports on the back (along with about 6 USB2 ports). This one has the Pentium G2030 processor; a Core i3 model would have been an additional 100 bucks. Newegg reviews of the G2030 were overwhelmingly positive, especially regarding the performance for the dollar spent, so I tried one. I have to say, we're very happy with it so far.
The biggest drawback to me about this size, in the DIY world, is the choice of cases. I like conservative styling on most everything (cars, clothes, etc), and that goes for computers as well. It seems that a majority of DIY computer builders are looking to make statements with their computer cases, and there are a lot of unconventional-looking cases available. In the micro-ATX world, case selection is large enough that there are models that are conservative enough for me to be interested. But in the mini-ITX world, there aren't a great number of cases available (though the selection is growing). The few that did interest me were in the $100 range, for the case alone (though most did come with power supplies).
Since I like how most retail SFF computers are styled, I think the best of both worlds is finding a cheap/free retail SFF PC and then gutting it, and putting what you want in it. You can buy the motherboard/CPU/RAM for about $250-300. Add a Blueray drive for another $20 and you have a pretty nice HTPC for not a lot of dough.
The other obvious drawback is there is generally no room for a second internal drive. This may or may not be an issue for you, depending on how you plan to use it. I think in most cases, if you have a 1 or 2 TB drive in there, and simply back it up weekly or so.
