They have come a long way in the last couple years.
690G and 7050 both have enough horsepower to handle HD video, and have great output quality.
I'm pretty sure any of these can't be compared to a dedicated video card with respect to image quality and processor load. But I agree it is perfectly doable.
Avermedia makes a great PCI-E card that records HD and SD, works with linux/mediaportal/mce , and fits in a low profile case.
Usually you have only one PCIe card on mATX boards. So you'd have to occupy the other PCI slots with the one/three tuners you'll probably need. And what's the point of putting tuners on a low profile case? You'll have to record the output of those, and you'd need storage room. Yes, you can put 1TB hd there, if you're building it from scratch and have a lot of money to spend, but still i'm not sure about the flexibility there. If you have some room in the case, at least 3 bays, you can use a notebook drive, a big drive, a spare old drive, etc. Cheaper and more flexible, and probably cooler.
Asus Xonar, one of the best sound cards out there, comes in PCI-E.
This one was just lauched. You can't find it anywhere (as opposed to the PCI version). And the PCI version already goes for close to $200.00, I'm afraid I'll pass.
Then again, the Realtec ac88x Azalia onboard sound does bit-perfect SPDIF out, so it's not needed if you want digital out.
Micro atx is viable. I got a motherboard for $75 that has onboard video, hd audio, spdif out, DVI/HDMI/component video/ S video out. I'm not even sure you can get all that in full ATX.
I'm sure that full ATX is not about having integrated video. But mine (DS3R) does have spdif in/out and integrated Blueray lossless HD audio, supporting 7.1 + 2 independent channel streaming (ALC 889a). All this is currently mounted in a case smaller than Antec's fusion (Zalman HD135, I posted my build somewhere). So if you're not saving space here, then unless you go for the slim cases, why not go full ATX?
I'd go with a slim case and mATX for something simple like an extender (I'd just buy an Xbox360, if it weren't so loud). But, on the other hand, a TiVo like recording computer, or worse, a gaming/music/video server HTPC needs full ATX.