Largest amount of my money I've ever spent, think its gonna be worth it?
It will be worth it only if you buy an RGB SCART lead (the JoyTech one is best) - assuming you've only got a standard TV. If you've got a HDTV (or you want to play it on your computer monitor) then I can recommend the VGA lead. I've tried both VGA and component, and the VGA seems the better choice. Hardly any games support 1080i and in any case, the interlacing is annoying. Better to go for 1360x768 screen res (effectively 720p) if you have a widescreen monitor or 1280x1024 if you're on a flat panel display.
Having gone from a surround-sound setup to plain stereo, I can't say as it makes a blind bit of difference to gameplay. So don't spend out on a surround speaker system thinking it's going to add a great deal to your gaming experience.
Stock up on Microsoft Points. Some of the Xbox Live Arcade games are more fun than anything you can get for £39.99. Also, wireless pads might be nifty, but wired pads don't run out of battery halfway through a game ;)