How did you stretch the size? The proper way to get rid of the black around the screen is to set overscan to 0%. Go to CCC, then My Digital Flat Panel, then Scaling Options. Set it to 0 and you should be set.
Your gonna need software such as Cyberlink Power DVD $50, Arcsoft Total Media Theater 5 $99, Corel WinDVD $49....etc. Or you just get AnyDVD HD (for a 1 yr update its like $60) and rip your movies to iso or mkv files. Just do a Google search. But be warned it is much cheaper to just use/buy a...
You can get by with an I3...I5 is just overkill for any HTPC. The Intel GPU should work fine for any HD audio and 3D playback. Right now Im running an Intel G530, Asrock H67m-ITX mobo and it plays everything I throw at it...even 3D. The G530 barley uses over 40% on either core during playback.
Your easiest and cheapest way to play Blu Ray disc is to use a stand alone player. If you want to watch Blu Rays on your HTPC then your gonna have to rip them into MKV or ISO. Then you can watch them using WMC or XBMC with the correct codecs.