What i want to know is would a grpahics car improve quality, and if so what card are a good starting point?
Improve quality? Maybe...if you are able to take advantage of LAV CUVID's HQ deinterlacing. Will it improve performance? Absolutely, especially if you choose to enable hardware acceleration. In fact you might want to try enabling that option now so you can take advantage of the i3's graphics engine. It might not be quite enough, however. In that case, I'd start looking at nVidia's options: the lowest I would go is a GT240. You really want GDDR5 memory, if possible.
Also is the ts/ifo the best way of playing the dvd rips? i read somewhere that mkv benefits from MADVR where as TS/IFO doesn't, but if you convert to MKV you loose menu structure etc. which i was hoping to keep. are there any other formats that help... i want to avoid iso if possible as streaming in the future is a distinct possibility andi don't want to limit my options (i think some players / renderes struggle with ISO... don' they?). ?
madVR is purported to work with ifo/vob files soon, but who knows how long that will take. If you
really don't want to rerip then I would just go with the ifo/vob setup and wait for madVR support. Otherwise you'll need to use mkv's. Keep in mind that ripping to mkv/h.264 is going to tie up a lot of CPU cycles.