I play games on my front projector which is VGA only. I own an older version of that Key Digital transcoder as well as the Holo3DGraph PCI board (the only $800 component input board I know of).
There is no doubt that that the best image quality comes from the native 480p through the transcoder. But for a while I was using a $40 vid cap card with an s-video input and deinterlacing software from
www.dscaler.org . The quality of that config was surprisingly good. It was certainly far better than standard TV. The key is the quality of the deinterlacing. I don't know much about the AIW but I do know that dscaler is the absolute king of software deinterlacing. I don't believe it works with the AIW cards, though.
The point is most people would be happy with the image and it only costs $40 for the hardware to run in the PC or the Viewsonic will give comparable results for $100-150.
The Key Digital transcoder I have is, frankly, not well designed. It doesn't strip the embedded sync to create a correct RGBHV signal. Fortunately, my projector lets me force sync on green so it works for me. Many computer monitors will not do this and end up with a washed out image. Looking at the specs of the X-Blaster, it appears that they've done it correctly this time but I would confirm this or have the option to return.
Another option, If you know a bit of electronics you could buy the bare board from
www.xboxvga.com and solder on your own component input jacks. No VGA passthrough and I'm not sure if it supports resolutions greater than 480p but you can't beat the price.
-Dylan