The digital out is a "headphone jack" on mini's, correct? I thought it would be the toslink type or whatever. So I assume I would need to buy a stereo to toslink or something?
Right, the digital out is a combo analog/optical port, most of us use a regular optical cable with a mini adapter tip like this:
Something of this age, I'm wondering if the HD are ready to fail and if the HD goes go, how does one restore everything => I'm assuming most used system aren't going to include any OS CD's per se. Can you purchase a standard SATA drive put it in and load the OS again (would need to purchase the OS though)?
Definitely something to factor in with the purchase of an old Mac...ease of replacing/upgrading the hard drive and your comfort level doing so in that particular model. Six months ago I picked up a used 2008 15" MBP from Craigslist and first thing I did was put a 128GB Samsung 830 series SSD in there that I had lying around, now it's like a brand new machine. You can often get the original Apple install disks when buying used, the Apple hardware test is on them, but it's not really that necessary with something so old.
For backup protection, there's a free OS X app called SuperDuper which will allow you to create an exact bootable clone of your internal drive, that's what I use for backup and it's been an essential tool for many years. If your internal drive fails, you can boot right up from that clone and/or install it in the Mini and not lose a beat. Given your plans, consider replacing the hard drive of whatever older Mac you buy with a small SSD, it'll help keep your Mac music player more quiet, cool and nimble. (Yes, an SSD even in an old Mac that only supports SATA I will make a very noticeable difference.)
Will there be any issues with pointing a mini to this existing DB without losing all the tags, artwork pointers etc..? I don't know much about moving/sharing iTunes with multiple computers. In other words will the iTunes version on the mini "matter" to what my existing version is on the PC/NAS?
There's a certain amount of iTunes voodoo involved, but you should be able to keep all your iTunes settings, metadata, art and playlists and such by moving the Windows iTunes equivalents of your iTunes folder and the com.apple.itunes.plist file to iTunes on your new Mac. There's definitely a right way to do it, though, so research and find out how to do it before you just follow your instinct. It has been discussed extensively online, you should have no trouble finding out:
You'll need to find the ones that apply to your given OS and iTunes versions. The Windows to Mac OS X migration has also been covered extensively but I've never had to do that.
To add new music, would I use (have to use) the mini to rip from CD into iTunes?
Up to you. You could import from the Mini drive or any optical drive on your home network, or simply drag and drop already ripped files/albums into iTunes (as long as you "keep iTunes media folder organized" checked on the Mini that is.) You don't even need iTunes to do the ripping, you can rip or convert with anything you want, XLD, dBpowerAMP, whatever.
I looked through ebay and this looks to be the cheapest buy it now as an example. Would this be sufficient?
well, that is the oldest and least capable Intel Mini and it only has 512 RAM, and with whatever Mac you buy you'll need to go to 2GB just to run the OS properly so factor that in:
That brings you to about $210 and frankly I wouldn't jump at a core solo for that price, if I were in your shoes I'd start my search with Core 2 Duo models. You should be able to find a 2007 1.83 C2D Mini with 2GB of RAM for right around that same price point. (A C2D keeps your upgrade options intact if down the road you ever wanted, or needed, to go to Lion for some reason.) Another option, and don't laugh, plastic C2D MacBooks from that era would do a great job as a networked music player for you, they are very plentiful used these days and fairly affordable (since you don't necessarily have to care about the condition of the battery or screen.) MacBooks share many of the same advantages of a Mini, they're quiet, cool, have optical out; additionally they run well with the lid closed and retain one big plus over the Mini: it's extremely easy to upgrade RAM and swap hard drives in and out of a Macbook, pop the battery, three tiny screws, and you're there. I've owned several white C2D Macbooks over the years, running them closed lid basically 24/7 in a home theater context, and it is really nice being able to get at its drive so easily.