The "digital adapters" Comcast offered you are known as a Digital Transport Adapter (DTA) and are the most basic addressable cable converter you could possibly make. I have some limited experience with them, but what I think I know is this:

• The FCC mandates that once analog service is shut off, the cable operator must provide you with up to 3 DTAs at no charge.
• The boxes currently don't have HD output because there is a grey area about how the law is written. If the box did have an HD or HDMI output, it might not fit into the description of a DTA.

As for the S-card slot in your Dad's Sharp, it should still be able to take any Cablecard. M-cards have to be backward compatible with S-card devices. But, you are correct when you state it's hard to find a TV with Cablecard slot these days. I rent an M-card and it costs $2/month.

I have an Xbox 360 in by bedroom that connects to my Windows 7 Media Center machine. I don't believe you could use an Xbox to do what you want to do (stream TV without a Windows 7 Media Center in the mix).

Ceton showed off their 6-tuner Cablecard DVR based on Windows 7 Embedded at CES. More interesting, however, was their companion media extender that would take the place of the Xbox 360 in your scenario. It looks really small and is, most importantly, fanless.
http://www.engadget.com/2012/01/10/ceton-announces-multi-room-dvr-and-echo-extender-hands-on/