It did ramble a bit, didn't it?! You ask if LMCE is overkill for what you want to do - but you don't really say much about what you want to do, just about what you have read and have got currently....
All I can see in terms of requirements from your post is connecting your sat pay-tv and being able to record shows, and you mention something about editing, but I'm not sure what you want to do there.
If all you want is a way of recording TV, then it probably is overkill. MythTV might be a better idea. However, if you are to try LMCE you will quickly develop more "requirements" once you can see what it does
You can certainly put DVB-S/T cards in a LMCE device and decode TV directly as long as your provider allows you to decode on things other than their own device. Or you can use an analogue capture card from your S-Video (assuming you meant that) or even composite.
HDMI/DVI is better, but not essential - if you have the option, use it, but don't spend a lot on the cables, there are a lot of rip offs out there!
The more you want to do, and the further you veer from the recommended hardware, the more tweaking you may have to do - but that is only in the setup, this doesn't mean normal users will see any of that. The interface is very simple and intuitive (and getting better all the time).
LMCE brings together a media player, security system, telephone system, home automation, etc all into one integrated package - there is no comparison with the Microsoft product, which is a media system only (and a pretty poor one at that).
As for your sound system, if it has an IR remote, then you can almost certainly control it through LMCE with a compatible IR blaster. There will either already be a template to control it with, or you can learn the remote commands yourself so that LMCE can change the volume, inputs, power, etc for you...