Check the first build in my guide.
CPU: AMD Athlon 64 X2 5200+ Brisbane 2.7GHz 2 x 512KB L2 Cache Socket AM2 65W Dual-Core Processor
This processor is a dual core 65nm part that that provides superior performance to a similarly priced Intel part straight out of the box. If you're not an overclocker and you're on a budget, AMD is the way to go.
Motherboard: BIOSTAR TFORCE TA780G M2+ AM2+/AM2 AMD 780G Micro ATX AMD Motherboard
This is AMD's newly released 780G chipset. It integrates the HD 3200 graphics chip which is the second most powerful integrated graphics processor which is more than capable of Blu-Ray/HD playback and will help out your CPU a lot during encoding. But that is not the best bit, the HD 3200 is already good enough to do some casual gaming, but it can also be paired using hybrid Crossfire with a HD 3000 series graphics card for almost double the performance. And Sapphire's board is the pick of the 780G's out there.
Memory: Kingston 4GB (2 x 2GB) 240-Pin DDR2 SDRAM DDR2 800 (PC2 6400) Dual Channel Kit Desktop Memory
With DDR2 prices so low, there's not really any reason not to go for 2x2GB of RAM.
PSU: OCZ StealthXStream OCZ400SXS 400W ATX12V Active PFC Power Supply
The PSU is an extremely important part of any computer and should not be ignored or skimped on even when you're on a budget. This power supply will provide sufficient power and there is enough headroom left for upgrading, all at a great price.
Case: COOLER MASTER Elite 330 RC-330-KKN1-GP Black SECC ATX Mid Tower
This is a case I will often recommend as a cheap but cheerful chassis. It comes with a 120mm exhaust fan but can also accommodate a 120mm intake fan for better airflow and cooling.
HDD: Here the choice is dependant on the user's requirements. If you're not sure where to start. Here are some requirements:
-SATA 3.0GB/s interface. This is the new interface standard and is a lot faster than the older PATA/IDE connection.
-Brand, I recommend either Western Digital, Samsung, or Seagate hard drives.
-Cache, even with a low capacity hard drive, I would recommend at least an 8MB cache.
As for the space, that is entirely dependant on the user's requirements.
Here is just one small suggestion: Western Digital Caviar SE16 WD2500AAKS 250GB 7200 RPM 16MB Cache SATA 3.0Gb/s Hard Drive
Disk Drive: SAMSUNG Black 22X DVD+R
You can't really go wrong here but the Samsung drives are known to be reliable. SATA means nice, neat cables.
Add an HD 4670
and it would completely destroy the system you posted.
There are a lot of guides around explaining the actual building process. It's very straight forward, a bit like Lego.