I guess I'll post an update on this, just in case anyone else tries to do something similar.
The whole setup worked beautifully.
A generic DVI-HDMI adapter from monoprice sent the picture to the TV from the 8800GTX. In the TV's settings we switched the HDMI audio setting from HDMI to DVI to enable the RCA stereo inputs, which made the sound work immediately (running from the front channel output on the Xplosion while the down stairs sound system was still connected to optical).
We had to use Ultramon to create profiles and shortcuts to put on the desktops for the up stairs and down stairs computers to switch the Primary setting between the two. And that seems to work great. I was a little surprised that this was even required though. Hopefully Windows 7 or a later nvidia driver adds a feature like this.
Anyways, we ran the TV output at 1280x720 and turned off SVM in the TV's settings to clean up the picture. Its an older CRT HDTV so it doesn't look real great but its definitely better than an SDTV.
Other than that, everything went very smoothly. The USB, HDMI and RCA audio cables all work fine at that distance.
One major snag was getting some kind of power on by keyboard function. That doesn't work with wireless keyboards so we just used the Sleep function which works surprisingly well.
Also, the touch pad on our Adesso mini keyboard is a little annoying because it has tap-to-click and there aren't any drivers to disable it, but after getting used to it its fine.
All in all it was a great idea and it worked perfectly. We were playing Burnout Paradise for 4 hours last night with a 360 wireless controller. The PC was down stairs doing all the work, and we were up stairs on the couch enjoying some ultra smooth (60fps+ constant, 720P, 8xAA) gaming while the baby was taking a nap next to us.