As per another thread I have a Windows Home Server running providing backups and serving my media.

What I plan to do is move the server a bit closer to the television and install Windows Vista Home Premium on it as a virtual pc, run a bit of Cat5 around the room with VGA extenders on each end and extend the USB IR receiver over the same route.

I'm hoping to get rid of the XPMCE box under the TV as it doesn't seem to be the most reliable of devices plus we have to boot it up and shut it down properly everytime we use it, the virtual PC would be on all the time.

So, would this work? The Media Centre residing on the same hardware as the server? Can anyone predict any pitfalls?

As long as you've got plenty of memory and a good CPU, it shouldnt pose much of a problem. I'm running 6 virtual servers on one server, and it doesn't break a sweat most of the time.