I'll do the best I can to answer all of your questions. This will probably be moved to the video forum promptly, but here goes.

Use what you got. If you have an Nvidia based board with S-Video out and you can't afford to replace the card, then use it. There's probably not a better solution for your current setup. You would have to buy a new card then an HDTV dongle.
Below is a picture of component video. It's the Y/Cb/Cr under the DVD connections. If you're already strapped, then I wouldn't bother changing your setup. In fact if you don't see somebody's setup that's using component standing right next to yours you probably won't see a difference.
If you go component, everything will cost you more. You'll need the ATI card, ATI HDTV dongle, and a TV with component in. I managed to nab a ATI 8500 card off eBay for $50 shipped and the dongle costs another $40 shipped. The TV will depend on what size you get, but they range from $130 @ 20" to $250 for 27".