It IS possible to do, but it is relatively expensive to implement properly. I agree that a modded xbox plus XBMC is a great low-cost way to go to get an easy to use STB that you can deploy at multiple tv's. I don't use em, but lots of people do and are happy with the results.
I personally use the comcast HD DVR, and while its no Tivo, its good at what it does - records HD with 2 tuners and lets me watch it whenever I want to. I only pay $5 a month for it, so no hardware investment.
For watching digital media, I use 2 HTPC's that are distributed throughout the house, running a frontend called DVDLobby (built on mainlobby) and a custom backend component that I built. Additionally I use girder for inter-PC communication, and Zoomplayer for dvd / media playback. To control everything I have a custom IR distribution system that I wrote / built. I store all of my media centrally on a couple of linux file servers running RAID5 arrays. Its now a very mature system, but it took several years to really work out all the kinks and get everything so that it's bullet proof stable.
HTPCs are great fun, but the amount of tweaking and configuring can get annoying after a while. I basically have "locked down" my HTPC's now and only experiement every so often, else I spend more time tweaking than actually using them. I also only use my HTPC's to watch movies. That's it. no time-shifting (PVR), music, games, surfing, etc.
there are lots of people who are also happy with MCE...