I use a NDAS
(Network Direct Attached Storage by Ximeta) 250GB unit for storage. It's different than a NAS (Network Attached Storage) in that is uses special Hardware (already built into the Rapsody N35 and their discs) and special drivers for OS X or Windows. The advantage of NDAS is it's xfer/copy speed as compared to SAMBA (what Windows typically uses). I use my PC to copy files to the NDAS unit which is a standalone drive attached by an ethernet cable. It is always on.
The Rapsody N35 sees it and plays files as requested when it is on.
The PC, the Rapsody and the NDAS unit are all attached to my home LAN via ethernet.
Only needed to add NDAS driver to the PC running XP. No special hardware on PC required.
I believe others are using the N35 with true NAS units like the Infrant unit. I already had the NDAS unit so that's what I used. I would love to have an Infrant 1100 NAS but not ready to make the financial investment. I had one bought (the 1000S model) for use in the small group I work in at my office and it has worked out quite well. My supervisor asked me if I didn't have it bought so I could get it when the project ends.
I personally don't like the idea of an always on PC. Too much hassle with viruses etc.
The idea of digital streamers and network attached storage is what I prefer. I do think all the digital content streamers have issues but for what I do I like the N35.
Again do the research. If all your files, video or audio, are in a specific format make sure the unit you pick will support them. Also make sure the GUI (interface) is workable/liveable by you & your family (The N35 is bland but it plays DVD ISO files (ISO files are one file per movie and give you DVD menu control, VOB files don't)).
Please note the N35 doesn't do very well on photos.
My 2 cents.