I'm looking to upgrade my audio system. Currently I have ... nothing ... so it's a pretty extensive upgrade!

Here are some details about the anticipated use of the system. I will be connecting my computer to my audio system to listen to digital music. I live in a 800 sq foot studio and listen to music while cooking in the kitchen and while in living room. When I watch DVDs I could be anywhere in the apartment but am mostly in the living room or in bed.

I have a few questions:

1) Is it possible to have too much power? I was thinking about getting the Denon AVR-3805. Given my limited space (and proximity to neighbours!), am I just throwing money into a component that I won't be able to take full advantage of?
2) Assuming people continue to recommend component-based systems instead of HTIB, what speakers are recommended? I'm looking to spend about $2500 in total on speakers, subwoofer and receiver. I was looking at Infinity Primus but they didn't have many reviews here. Polk seemed to have a bunch of reviews.
3) Is there a point in getting surround sound given I like to watch DVDs throughout the condo? For this I'll try to draw my floor layout so people can see where I'm talking about.
----------------------------------------------------------------

|   kitchen         computer            c                 tv   |                    

|                                       ou                     |

|                                       c                      |

|           dining table                h                      |

|                                                               |

|              ------------------- | bed                      |

|                 bathroom         | bed             shelves |                      

|---------------------------------------------------------------|

4) In order to hook up my computer to my receiver, it appears that all I need is a sound card. I was looking at the internal m-audio revolution card but the going trend in the forums seems to be external cards and devices (Xitel Hifi-Link, Airport Express, etc). Is this because the computer interferes with the audio signal or do external devices just produce better signals?

Any advice, comments, suggestions are welcome. I'm pretty much an audio novice so you can safely make the assumption that I know nothing.

Thanks in advance!