Well, let me just say this. Media Center Edition is very picky about what hardware (ie. TV tuner) you use with it. If you do use it and have the correct tuner card/cards (MCE2005 supports 2 tuners), and you happen to live in the US, you will fall in love with it and wonder how you ever got along without it. It basically does everything a TIVO can do. Now if you don't have the correct hardware for it to do what it was designed to do, you may end up a little red in the face. That is the main reason that Micro$haft decided not to sell it as a stand-alone product but only with certified OEM products. They didn't want to have to deal with the end-users inability to work out the kinks when they just buy any old tv-tuner and expect it to work out of the box. A list of certified compatible TV tuners can be found here. That being said, it's also not only the tuner cards but your system specs should also be rather on the high-end. At least a P4 2.6GHz or Athlon XP2500+ and above with 1Gb of ram will suffice. Go any lower than that and you will probably not be happy with the responsiveness of the media center interface. I might also add that MCE was designed to be controlled with a remote control, from 10 feet away on your living room TV set. It might be the closest thing to perfect when it comes to the 10-foot interface that is out on the market. Some different apps that do the same thing and are nearly as good are SnapStream's FireFly remote (hardware) in combonation with BeyondTV (software). BeyondTV works with more variety of TV Tuner cards than MCE, but the bottom line is that they both are designed to be the living-room controlled 10-foot interface that brings convergence to PC and TV. If you're not ready to put your computer in the living room you may want to hold off before upgrading to MCE. I built my own machine to test it out with an AMD AthlonXP 2600+ Barton Core CPU and 1Gb of ram, threw in a Hauppauge WinTV PVR 150 and control it all with SnapStream's FireFly remote. The end result is outstanding. Even if it's not in the living room yet, I can see the potential application there. It's just a matter of me building another better machine to game on (I'm currently using this one to game with). To answer your intitial questions though. Yes it is basically windows xp service sp2 integrated with a slick interface for controlling your media with a remote from 10 feet away. Sadly there is no way to upgrade XP to include the Media Center. Not any that I have found anyways. No you don't have to upgrade it to SP2. It's integrated. Yes nlite works with it. As long as you don't strip anything important to the operation of the media center. Like if you just want to use nlite to customize an unattended install CD. I don't think nlite has any options that are specific to MCE though, so you have to treat it as though it were XP pro. Hopefully the info I've given will help you decide.