A few thoughts ...
=> The HD 2600XT will work fine --> I've got one tied to a 60" Sony SXRD display that works just fine.
=> You are correct that HDMI is exactly the same as the DVI signal, but without any audio. A simple DVI -> HDMI cable is all you need for the hookup [Monoprice is a good source for these]
=> It IS possible that your TV will need to "toggle" the inputs to get it to recognize the PC if you switch away & back. I never have his issue with my system; but know that some folks do.
=> As for whether it's a "good idea" or not ... I would NOT want to use my 60" display as a day-to-day monitor. It's a GREAT HTPC; and I do a bit of casual browsing with it; but it's simply not a "great" monitor. As you've correctly noted, the issue is text. The larger the display, the more detail you need to have for text to look really good. A 42" (or in my case 60") HDTV will be displaying text that is more optimized for a 24" display [which has a default 1920 x 1200 resolution].
... as a simple example: Consider the 30" Dell you're thinking about vs. a 42" HDTV: The HDTV has 84% more screen area; but only 51% as many pixels ==> put another way, the Dell has about 3.63 times as many pixels/sq inch as the HDTV ... a MUCH sharper display.
... basically, HDTV resolution is the same as a 24" monitor [It's slightly different, since monitors use a 16:10 aspect ratio and HDTVs use 16:9 ... but it's the same pixel density]. So using an HDTV is, from one perspective, simply "magnifying" a 24" display to whatever size your TV is.
As long as you're aware of the tradeoff, there's nothing wrong with using the HDTV => it will work exceptionally well for watching movies; gaming; etc. Depending on the TV's overscan settings, you may or may not need to compensate for overscan, but the Catalyst driver makes this very simple.
... It won't be "too bright" ... and there are no "risks" [LCD panels don't have "burn-in" issues like plasma displays]
Note: Since you already have a 32" Aquos, you could simply hook your 2600 up to that and see what you think about the overall display quality (especially text). A 42" display is 72% larger ... but at least you'll get a reasonable "feel" for what it looks like when driven by the 2600.