My music server was setup before home NAS drives started to fall in price so i would recommend a NAS as opposed to my setup. Having said that, I am very happy with my networked music collection.
I have the Linksys NSLU2 (the SLUG) with an external 750gb hooked to that thru USB. The Slug will work with any format drive (fat32, NTFS, Ext2 and 3) which is handy for turning any thumb/external USB drive into a network drive. The NSLU is then plugged into my wireless router. At the stereo I have a Apple Airport Express router which i actually just use a repeater. The Airport Express has digi-out and acts as a Itunes server. The itunes folder is re-located to the network drive and anyone on the network can now load that library. So my wifes Macbook, my laptop running XP, and my desktop XP, can all connect and control Itunes. My comp running linux also can take advantage of the network drive. The only failing of this system is the need to convert FLAC to Apple Lossless. But DbPoweramp does this with all tags intact. Itunes for XP could certainly be improved but it couldnt have been easier to do the above network. Itunes also does tagging/album covers/lyrics.
When i started this i made the concession for space and converted my studio CD's to 320kbps MP3. Concerts are all Apple lossless (originals all in flac and backed up offsite) and any new CD's are now Apple lossless also. I certainly wish itunes would do flac but...oh well. I generally do all my work on my desktop which also has the identical 750gb harddrive which then gets copied to the network drive overnight. I can also make changes from any other computer to the network drive and the desktop HD will be updated at night. The networked drive and backup is so handy.
For software I use EAC to rip, convert, and tag. Itunes or Iart to apply album covers and lyrics. DBPoweramp with various codecs to do my shn, flac, ogg, apple lossless, converting. I use Synchback for backing everything up. For video i have been using DVDFab Decrypter, Nero, and Super for converting anything to anything. Incidentally, Super is one of the best video conversion programs i have found...anyone else tried this?