OK. A few answers...
First, this is the UPS I bought:
http://tinyurl.com/dyjwbvl1. On the Home theater setup, I do use a surge protector. Is that what you mean by a quality filter board? I remember it wasn't cheap. I think it's made by Monster Cable if I'm not mistaken but it's about 10 years old. I doubt it's better than an actual UPS. Can it be??
2. I've never really gone into the BIOS for the Home Theater PC. I only use it to play movies from Netflix/Hulu/Youtube some times Pandora or AVI movies. So I guess it's using defaults but I'll go and check.
3. The testing was done by both computers with WIFI usb dongles in both rooms. Didn't have a cable that would reach to the living room so I pulled out a wifi usb dongle from a laptop and installed it in the PC. As I said, I used that same dongle during both tests. One fails constantly, the other does not.
4. I read KB330100 but I don't really get a BSOD. My screen just stays blank. I have to forcebly shut off the computer completely. Wait about 5 - 10 minutes and then it will boot into "Resuming to Windows" So, it never really registers as a BSOD. Just as a loss of power.
I wonder what's causing this loss of power, or voltage fluctuation or electrical issue and why the UPS is not able to kick in?
I am also wondering if the Power Supply may be contributing to the issue. Can't find anyone saying anything good about it in the CyberPowerPC forums. This is the power supply I got from them: XtremeGear 700Watt Power Supply. But why would it work fine in the living room? It's mind-boggling.
Can either of you explain what an Active Power Factor Correction (PFC) power supply is? All I know is that it's more expensive than a normal power supply. I doubt CyberPowerPC included that on my setup since it wouldn't be cost effective for them (meaning: they're cheap as hell) but apparently the UPS I bought doesn't work with that type of power supply. It seems to be working fine with mine though. I tested it by unplugging it from the wall and the PC kept working fine.
If I'm going to try a new power supply, should I try a PFC one or a regular one? What's the advantage/disadvantage? I'd have to make the call on returning the UPS I bought though.
Thank you both for your help!