I'm not sure S-Video is worth it; it's really a pretty terrible standard. Fragile as hell (I don't know how many cables I had to replace over the years because I bent a pin or ran over the cable with my chair) and not well-supported. I assume you're using it because you already have a CRT TV with an S-Video in, yes? If so then yes, 16-bit games (and 32- and 64-, if you intend to play those too, and movies) will look noticeably better with S-Video (until you manage to inevitably damage the cable somehow), but NES games will probably look worse.
Otherwise, if you're planning on hooking it up to a modern TV, forget S-Video and use VGA or DVI. (DVI->HDMI adapters are a couple bucks at
monoprice.com, and indeed that's pretty much where you want to go for any kind of media cable.) Of course, at that point ALL your old games are going to start looking pretty crummy, but if you run emulators with Blargg's NTSC filter for graphics (and the biggest-name ones -- Nestopia, SNES9X, Fusion -- have it baked in) that's the next best thing.
Also, using the original controllers makes for some definite bragging rights, but also a whole lot of plugging/unplugging controllers. Frankly my OG SNES controllers aren't in the best of shape anymore from all these years of wear, and of course since the SNES layout has defined standard controllers for the past several generations there are plenty of PC controllers you can get that work great for SNES games. (I'm partial to Logitech, but an Xbox 360 controller will do the job just fine too.) NES is a bit dicier; I've got my Wii Remotes working via a Bluetooth adapter and a couple of programs but I wouldn't recommend it. And Genesis controllers -- well, I've yet to find a controller with 6 face buttons that works well for Genesis emulation. (As I've mentioned elsewhere, you'd think Mad Catz's SF4 fightpads would do the job, but they're too floaty; they're great for games designed for an 8-directional stick, but not so much for ones designed for a pad.)
Don't know much from soldering/Dremeling; you'll want some practice before you start hacking away on your NES.
I have a half-built cab that's sat there unfinished for years now and still no idea where it'd go when finished
Aw, too bad; that thing's a beaut. I still tell people about that, and how that's what I'd build if I were serious about this shit.
Instead I ultimately wound up building a standard mid-tower case and hooking it up to my TV. I use XBMC, which is pretty great as a media frontend but not something I'd necessarily recommend for games. There's a plugin called xbmc-emulator-plugin or somesuch; it gets the job done as a launcher but requires a whole lot of fiddling for the metadata not to be terrible. (This is largely because -- MAME aside -- games don't generally have well-designed, consistent, scraper-appropriate metadata sites like movies and TV shows do.)