I also use DVDFab to rip my blueray discs main movie to MKV. (~17GB to 40GB per film) This is then stored on my server and streamed with MythTV Backend to my MythTV frontend. The frontend is an Acer Aspir Revo R3610 and the nvidia ion is superb at HD playback with no stutter at all. Has to be gigabit wired connection though.
It can't play straight from a Blu-Ray disk as there is no open source codec for Blu-Ray's. Converting it to MKV removes the DRM and it can then be played anywhere.
It's easy to get XBMC to play blu-rays quasi-directly. I've done this: http://lifehacker.com/5621471/how-to-enable-blu+ray-playback-in-xbmc This is OK if you REALLY must watch the movie from the disk right away. However, it's 'flakey' (pause and resume can be hit and miss), so it's better to plan ahead): MKV in advance and then play the file in XBMC.
My HTPC/Server doesn't even have an optical drive! All my films are ripped to the server for playback but it's nice to know there are work arounds out there.
I really believe this is the best solution, and definately the future. I ripped all my 300+ CDs to FLAC on my NAS last year, and now when I buy a CD, the only time it's put in an optical drive is to rip it. One day I'll do this for my (small-ish) movie collection, but I need more storage first since I'm not interested in compressing blu-rays/DVDs due to loss of quality. How much storage do you have, Da_Rude_Baboon? jaseuk, do you have enough strage to operate this way? I've trialed the players including Arcsoft and I don't think it's bullet proof. e.g. I had trouble with X-Men: First Class due to new blu-ray encryption http://www.arcsoft.com/Forum/forum_posts.asp?TID=9173&title=xmen-first-class-bluray-playback-problem. One could be faced with paying for updates to play future discs.
You can check this article about Blu-ray player software. I used it sevreal months ago when I was looking for one myself. There are some cheaper alternatives (like Roxio and Nero) to Total Media and PowerDVD although they are a bit limited in comparison. Also, at least to my knowledge, all of the players that could play BDs directly without ripping and with full capabilities are not free. btw. According to CyberLink's website, it seems there is PowerDVD 12 as of today. These guys are releasing new versions several times a year, probably to get more money out of us.
I agree that the best way is to rip Blu-Rays and then play them that way however this isnt always feasible due to storage and time constraints. The next version of VLC will definately play Blu-Rays from what I read. I know VLC plays .mkv files but I am assuming this means Blu-Ray discs.
I've also heard some similar rumors about VLC but I wonder how they will cope with the Blu-ray licence fees. I've heard they are mandatory but VLC is free.