Hey dude, congrats, welcome.
First off, yes, the 360 is also a media extender. In other words you can access all the media on your PC via the 360 and play them through your home theatre system rather than off a pc. Setup is reasonably simple. If you don't have Vista Home premium, Ultimate or XP MCE, you can use media player 11 or an app called TVersity. They all do the job.
As far as cheap games go, the best thing to do is watch the game trade thread over and Xbox-360.co.za, not only are there pretty good person to person trades but there are also retailers with first hand deals as well.
If you're looking for new releases, online stores will almost always be cheaper. Kalahari, BTGames, Zaps and Take2 are your best bets.
Other than that you can look at renting from tradestation as well.