I voted rackmount PC
Basic hardware would be a rack case, mainboard, CPU, memory, hard drive and a video card. (forgetting something?)
Get a mainboard with a built in video card, this can save some cash and hassle. if not, just get some very cheap vid. card.
Get an AMD 64bit X2 CPU if possible. The dual core technology requires a multi-CPU capable host, and I don't know how many hosts have that (such as FX teleport, more on that later)... the X2, however, terminates the Pentium 4's in terms of processing power! I guess the AMD 3700x-4200x 64 bit are also very good, but not like the X2...
1 gig memory recommended, any more won't do you good unless you're going to be running loads of samplers on there...
Hard drive... just something cheap, maybe 150-200gig... that should be much much more than enough.
Gigabit LAN. Most mainboards today have this built in.
There are two ways to set up a system like this, different ways, but both very good
a) Rackmount computer has a dedicated audio interface.
Either you can get a PCI interface, I'd suggest an EMU 1212 or 0404. A more expensive, but perhaps a better solution would be a rackmounted audio interface. RME and MOTU both have great high end products, but M-Audio 1010 could also be a good option. You'll also need some way of getting midi into your computer. you can do this simply with the joystick port on the mainboard and use an adapter or a USB MIDI interface, but a more elegant solution would be a rackmount midi interface. M-audio makes a great 8x8 interface if you need all those ports.
This way, you'll have a whole new DAW, just in a rackmount case. You'll need a vst host to host you plugins.
b) Rackmount computer connects to main host computer via ethernet.
Use a program such as FxMax Fx Teleport. This way you can load up "virtual virtual instruments" :p on the main host, and have the plugin actually run on the rackmount. Midi in streamed through ethernet to the rackmount and audio is sent back. FX Teleport intergrates 100% into any vst host, so you can load "external plugins" like any normal plugin. Unfortunately, I don't know if FX teleport is compatible with dual core CPUs
And three ways to control the system:
a) The computer could be controlled via remote desktop (this is a part of windows 2003 server, for example, but I think you can install it on win XP machines as well). This could be a little complicated to set up for an amateur computer user, but you must have some nerdy friends that can help you
b) If remote desktop is too complex for you, you can of course just connect a monitor, keyboard and mouse, but an extra set of controls may take up a lot of space.
c) A middleground solution would be a program called Synergy (freeware). it's similar to remote desktop, but it doesn't allow you to see the desktop on the other computer, but only use your mouse and keyboard to input data. You could then buy a small 15" flatscreen and mount it on the front of the rack. I myself use Synergy and FX Teleport to control my Laptop, which I use to get some extra processing power from time to time.
...and there you have my two cents... actually it's more like 30 cents...