Here are some links to cheap STB type pc devices and interesting writeups.
http://www.ewayco.com/100-low-cost-pc-products-low-cost-systems-embedded-sys...
http://www.greenhughes.com/content/it-time-ubuntu-set-top-box-remix
http://www.pcworld.com/article/50167/ibm_picks_linux_for_settop_boxes.html
http://blogs.computerworld.com/15778/google_and_linux_are_coming_to_your_tv
Some tv box desktop images below.
http://deviceguru.com/boxee-vs-zinc-vs-hulu/
There is a lot happening in media centric STBs running on Linux. What the Govt. can do is take a nice universal box and develop custom embedded India centric linux desktop software for the masses. If it boots locally then it is not tied to any ISP.