I built a system very much like that in the OP a couple of years ago. I used a Zotac GF9300-D-E mini-ITX motherboard and a Celeron 450 Conroe-L CPU.
It worked pretty well for most HTPC tasks. I don’t recall how well Netflix streaming did on it, but I know I had issues with Blu-Ray playback stuttering on several disks which disappointed me enough that the system saw little use. Maybe the problem was the OEM version of Power DVD 8, but I expected decent hardware acceleration with the 9300 GPU.
If I had to do it again today, I would definitely go with something newer. The Sandy Bridge system that was recommended will produce a much better experience for not much more money than the Celeron system.