Here are two links for all of you with questions as to how MCE works:
Short video about what MCE and a HTPC is
Test drive MCE, flash interactive demo of MCE:
Yes, you can add your own programs to the menu in MCE but MCE is limited TWO apps and they have to be coded via HTML. For more information search for the MCE SDK framework, it comes with a demo. Since IIS is running on MCE you can make it a webbased app via ASP.NET, ASP, or PHP to do just about anything you want.