I agree with Prolab - Was in your spot about 2 years ago, so the components I used might be outdated by now. I tried the media server route on windows 7, but that meant that the office PC always had to be on with windows media player playing. Other solutions I toyed with included a hard drive connected to the router via USB. I never ventured into PLEX or some of the other streaming software others have used. In my experience, I couldn't get solid performance trying the DLNA route, so I built a dedicated HTPC with a GT440 based video card, small SSD for the OS, the biggest cheapest case I could find to go into the media room in order to house many hard disks, big reliable power supply, 8GB of RAM, and a quad core Phenom AMD processor (cheapest one that would do the job). At the time, XBMC didn't work real well on Linux, so I purchased windows 7 for it.
In the two years or so that we've had it, I haven't tweaked it much in about 18 months outside of windows and virus updates. We use it as a backup device for our other computers and a NAS. Since it's connected directly to our main living room receiver, we use it like any other A/V component. It has a few bugs, but we haven't had any problems that couldn't be fixed with a harmony one programmed macro. My wife doesn't have any issues using it and my two year old knows when we access the screens out of order to get to her favorite movies. It's been awesome to have our DVD's loaded and not have to mess with the discs when we aren't sure what movie to watch.
I like XMBC as it's free, reliable, and very customizable. We like to play music, watch our DVD collection, and view our pictures through the HTPC. I did play with emulators for a little while using an Xbox 360 controller. Cool stuff.
If you're looking to build a cheap NAS, you might look into FreeNAS
. It based on Linux and works well. We ended up using the HTPC as the NAS at our house, but did play with FreeNAS for a while. You can run it in memory and load FreeNAS onto a 2GB CF card, then use a CF to IDE adapter
to basically replace your hard drive with a CF card. It cuts down on power usage and keeps your NAS lightweight. http://www.freenas.org/
If I was in your shoes, I'd purchase the HTPC hardware, it's the most flexible option. Good luck and keep us posted.