Was contemplating whether to have 1 machine or 2. My usage for the machine will be:

1) 24x7 Server (File, SFTP, Media, Torrent server. Maybe CA/AD/VPN. Possibly using Windows 2008 R2 as I have a free license from my university MSDN account)
2) Web Surfing. Flash required as the financial websites I access uses Flash. So definitely need a decent CPU)
3) UPnP server to serve other TVs in the same house.
4) Light gaming (Facebook, old 5yrs + games) occasionally.

I need at least 3TB for my storage space as my current 1.5TB external hard disk is over 90% filled. My plan if I was to get 1 PC was the following:

Intel i3-2100 or i5-2400
Asus P8H67-I non-deluxe
2x 4GB Corsair XMS3 DDR3-1333
Corsair SandForce F60 60GB SSD or Intel 320 Series 80GB SSD (OS + Frequently used applications)
3x WD Caviar Green 2TB WD20EARS 115x4 (RAID 5 but I heard there are issues with RAID 5 on this drive?)
Lian Li PC-Q08
Sparkle 250w PSU (Reusing as I already have it)

Total Cost (est with Intel SSD & I3-2100) - SGD$1,220 (~ USD$935)

Even if I decide to split to a server client model, I can only reduce the CPU and RAM and remove the SSD (cost savings of ~ 340USD) but the new client will cost way more than that. I also lose transcoding (not sure if I will mind that though). I can however, buy the server first and the client later (how does a e350 works against an i3-2100 in that regard?)

For example:
Server Build (unforunately, no transcoding)
MSI E350iA-E45 Mini-ITX $189 (no Intel Atom board with more than 2 SATA)
1 x 4GB Corsair XMS3 DDR3-1333
3x WD Caviar Green 2TB WD20EARS 115x3
Lian Li PC-Q08 - $162 (Any smaller casing that can support 3x HDD?)
Sparkle 250w PSU (Reusing)

Total Cost - SGD$774 (~ USD$595)

A new client will need a i3-2100 at less but the signature will be smaller.

PC Build (for web surfing/watching vids, gaming)
i3-2100 + Asus p8h67-i
2x 4GB Corsair XMS3 DDR-1333 (PC10600)
Intel 320 Series 80GB SSD
Seagate 1TB 2.5" HDD
M350 mini ITX enclosure - $100 (any better suggestions?)
Pico 90w PSU (reusing power adapter from laptop advisable?) - $30
Antec ISK 310-150 Mini-ITX Case (SFX is not 80 plus though. Alternative if 90w is not enough. Read that i3-2100 maxes at 76w)

Total Cost - SGD$960 (~ USD$740)

Any advices?

Oh, the other concern is that RAID 5 doesn't work very well on WD Caviar Green drives.

Should I go for another HDD (bearing in mind that idle wattage is important as the server is on 24x7) or forgo the redundancy and backup to external HDD (for selective data) instead? If so, JBOD will be ugly though with many drive letters. Any idea how to get a new single drive without having 1 disk failure bringing down the entire drive aka spanning (RAID 0)?

If I've well understood your concern, RAID 1 + 0 (striped set of a mirrored pair) should work (with somewhat better performance). You will need - obviously - 1 more drive.

About the other questions:

1. About the client-server scenario, I wouldn't re-use a notebook AC adapter for that job, as I don't think there are enough powerful ones. Anyway, an 80-100W power adapter could be adequate.
2. Still about the client-server model, there are server-style Atom boards with 6 SATA ports, like the X7SPA series by Supermicro.
3. For gaming, a Core i3 2125 might be considered.
4. About smaller enclosure than the Q08, if you don't need an ODD, you may look at the CFI A7879

Have a good luck.