HP’s TouchSmart line of all-in-one desktop computers has undergone quite a transformation since we examined the very first model, the IQ770, nearly two years ago. Not only is every change for the better, but HP has managed to slash prices by several hundred dollars.

The formfactor is the most obvious change to the TouchSmart line: The IQ770 was like a monitor stuck on top of a pizza box; the new series looks like an oversize picture frame. Apple, Dell, and Gateway have all taken this tack with their all-in-one offerings, but HP’s engineers also designed the TouchSmart like an easel. By using three feet to support the computer, the company was able to carry over the IQ770’s handy keyboard garage concept (providing a space below the CPU for keyboard storage), but it’s impossible to casually adjust this display’s tiltangle. We loved the fact that we could use the IQ770 while either sitting or standing, but you can’t stand in front of the IQ506 unless it’s on a bar-height counter.

HP sells three preconfigured TouchSmart models. We reviewed the middle offering—the $1,500 IQ506t—which features a 22-inch touch-screen, a 2.16GHz mobile Intel Core2 Duo CPU, a discrete videocard, and a 500GB hard drive.

The TouchSmart achieves its impressively thin profile (it’s just three inches thick) by using many components that were designed for notebook PCs, including an external power supply. This helps keep the rig cool and extremely quiet at the expense of performance, at least when compared to a conventional desktop rig. You need to find a good hiding place for that brick, too.

The TouchSmart’s main attractions, its touch screen and the user interface associated with it, have been radically improved. The screen supports multi-touch gestures, for instance, and the user interface can display an unlimited number of tiles (which serve the same function as shortcut icons in the Windows GUI). The silly three-slot limit on user-created tiles has also been eliminated. HP doesn’t make much use of multi-touch features at this point, though; you can use two fingers to resize tiles, but that’s about it. HP got rid of the stylus, but there’s no need to worry about fingerprints smeared all over that huge LCD. The screen is covered by a sheet of protective glass that the documentation says can be cleaned with “typical household glass cleaner.”

The keyboard is a vast improvement over the one that shipped with the IQ770; it feels very solid and delivers excellent tactile feedback while being just a half-inch thick. HP augmented the Analog Devices SoundMax HD-audio chip with signal-processing software from Sonic Focus to deliver much-improved audio.

The TouchSmart application software is a mixed bag: The music and video programs aren’t terrible, but the photo editor is far too basic and the calendar can’t synchronize with a smartphone (it will, however, automatically sync with Windows Vista Calendar. Woo hoo!).

We’ll sum up by repeating what we said about the first-generation TouchSmart: It would be a big mistake to make the IQ506t your one-and-only PC: It’s just not powerful enough for gaming, heavy-duty photo or video editing, or many other enthusiast applications. But it is an absolutely fabulous family computer and media center.