So, I bought a Zotac Zbox barebones case. Barebones means you add memory and a disk drive, which is real simple here. As well, you easily avoid the windows tax.
Then I got XBMC Live, which you put on a cd-rom. If you run it on your existing system (live doesn't hurt anything!), then you can create a bootable usb stick for the zotac. It installed very nicely. Now I got something that shows videos at 720p, handles subtitles, and mkv (which the ps3 stinks at), and good youtube videos. The ps3 is still good for the son, and his games.