Looks like a good system. I'd go with the M2N-MX SE motherboard with nforce chipset and onboard 6100 graphics here....
http://www.newegg.com/Product/ ... aspx?Item=N82E16813131183
I'd probably go for a 250GB drive because you can get a good deal on the CPU with it through newegg, atm 250 is the sweetspot where you pay the least per gig.
You don't need that graphics card as the motherboard comes with onboard video, since the kids don't play any games the onboard should be fine for everyday use.
For that type of system I'd expect 275W to do the job fine, also I'm not sure that other PSU you have will fit in that case properly. It looks like the mirco ATX case has a rectangular PSU compared with the sqaure one. It could be a hard task to find a PSU that fits with more power available but imo 275 will do the job of powering this system. If it had a beefy graphics I"d be more worried, but for what the system is it should be plenty fine.
That's about it from me, you'll probbaly get some better ideas from other people that have actually built a micro atx system, but those parts would be my pick.