A PS3 is only ONE component in a home theater setup. In this case, it would take the place of a DVD/Bluray player. You would still need some kind of surround receiver and speakers to get any audio from it.
I'll just give you a bit of an idea what I do, and why.
I went out and found a like $650 computer that is pretty similar in spec to my current desktop computer, and then loaded XBMC onto it. Then I started ripping copies of all my DVD movies and TV shows, and storing them on the computer hard drive. This way if I'm watching a movie like PCU, and for some reason that stirs the desire in me to watch Gilmore Girls, I can do that without having to hunt down the discs, or having to worry about switching discs every 3-4 episodes. I can also get cover art, it can scrape TV and movie sites for plot info, etc. Very nice and handy. I chose to go way overboard on the total processing power of the second computer, so it can double as a sort of disaster recovery system. In the event something ever happens to my primary desktop, that one is always there to help me limp along.
Anyway, my computer is connected via HDMI to my Onkyo SR-706 receiver which grabs the audio and forwards the video on to my TV.
I also have a number of game consoles connected in a similar fashion, but let's just say that both the 360 and PS3 are awful media players aside from maybe DVDs. If you rip and encode your own collection, forget about it. The original Xbox could be modified to run XBMC, but it just doesn't have the hardware to handle 720p let alone 1080p.
There are also devices like the WD TV that will stream content from a computer to a TV. Just some food for thought.
I recently purchased a new HDTV, and was looking to get a home theater system for better sound/picture quality while watching movies. After asking around, most people directed me to a PS3 instead. Since I'm clueless with this kind of stuff, I was wondering if anyone could give me some advice. If I get the PS3, do I then have to purchase separate speakers for the surround sound? Also, many of the home theater systems I've looked into have an Ipod dock which is extremely important to me. Will my PS3 play my Ipod and is it complicated to set up? Any advice would be greatly appreciated.