1. yes it can be added to the motherboard. you can get them as a PCI or USB.
2. that depends on what sound card you buy, and what type you buy. most carPC cases are too small to fit an upright PCI card so you'll need to use a 90° riser card (or a ribbon cable riser card). a USB card can be used with any case.
3. if you want to use the M2ATX then make sure your other components are efficient enough to run from it. remember, total wattage means nothing; make sure your devices don't draw more current from each rail than the M2ATX is capable of providing.
I use the M2ATX with an Intel Little Valley D201GLY2A board. it is very efficient, has good performance (Core2-based celeron), and is very affordable (~$75 USD), and is small enough to fit into small cases like the voompc or mo-co-so carPC cases.
4. look for the brightest monitor you can find (transflective is best, but is not within your budget). also, make sure the monitor you choose has VGA input (composite video input is no good for computer use, small text will be unreadable and detailed pictures will appear pixelated).
5. 1GB should be fine; I only use 512MB and my system zips along quite nicely, but your individual computer uses may require more. keep in mind that many of the smaller motherboard (mini-ITX and smaller) only have 1 ram slot, so make sure you get a large enough RAM stick to start with (since you can't 'add' to it later)
6. are you planning on integrating the DVD drive into the dash, or using it in the pc case?
7. that all depends on your needs. I use a 40GB 2.5' laptop drive ($15 on ebay ) and it suits me just fine. other people swear that any HDD less than 500GB belongs in a museum
--I know you're excited about this project and want to get it done fast, but don't rush through anything (you'll regret it later). read through the FAQ sections and the wiki. take your time and shop wisely, you can find some good deals if you shop wisely.