For DVD playback, almost any video card will do. The Nvidia 7800/7900 should do the job and even let them play the occational game if they want. I second the opinions on memory, get a 2GB kit if it is in budget.
The sweet spot for disk price/capacity is 320GB drives. I suggest that as a minimum. Consider two
AMD vs Intel. Sure Intel win in benchmarks, and if they re-encode DVD when burning it can cut the time down a bit -- but if they just encode a movie a day, do they care if it takes 2 or 4 or 6 hours? AMD still gives excellent performance per dollar. I would rather have AMD + 2GB + 2x320G disks than Core2Duo + 1GB + 1x250G. Check prices.