1) do I just install a splitter @ the main cable.. so one end will connect to my existing HDTV tuner, and one end will connect to this usb device ? I won't be using the over-the-air digital channel.
Yes, but I wouldn't recommend scrimping on a splitter. You don't have to go overboard either. In fact, I would call your cable company and ask what splitter they use/recommend. That way if you run into issues they can't try and pin it on your splitter.
2) I have win7 but never use the Media Center functionality (cuz I use linux most of the time, I only use Win7 for PC gaming). So the Media Center has the built-in capability to detect this USB device and set it as PVR ?
Yes. You'll have to run through a setup wizard the first time around, but it should all be crystal clear and easy to follow. If you end up having questions, just ask. Usually CUP or I can answer.
3) Does the software filter out the commercials during recording ? or is there such thing ?
Media Center has no native way splice out the commercials, but there is software that can. I have never personally used it though, so you might have to experiment on your own.