When I posted about my new Mac lust, I mentioned that I'm currently using a PPC Mini as my media server. Someone asked what that looks like.
The basic idea is really easy. Start off with a Mini. Add in more RAM (which probably isn't essential if you're only doing audio playback, but is definitely useful if you're doing video playback). Now, go buy an external hard drive, which is at least 1.5x as big as you think you need -- after all, your media collection will grow. Then set up iTunes to use this new external hard drive by opening the Preferences, going to the Advanced tab, and then changing the location of your iTunes music folder from ~/Music to your new external hard drive. Now rip your CDs or buy online or whatever to your heart's content, and try not to get upset when you learn in a few [days | weeks | months] that your external hard drive is no longer big enough. And don't forget to hook your Mini up to your stereo receiver, which just requires a mini RCA cable to connect to whatever input your receiver uses. If you've got an iPhone or iPod Touch, then you can download the Remote application and use that to control it.
If you want to do video, it's not hard either. You might want to get another external hard drive to store your video files on, if you've got lots of it. Quicktime will play plenty of video formats, but I also keep a copy of VLC media player for those files that Quicktime either doesn't support or has problems playing. If you don't have a standalone DVD player, you can play videos on your Mini hooked up to your television (which works well, so long as you don't have DVDs from other countries).
That's the basics. You can go way more in-depth if you want to, but I generally haven't found a need for it. I'm definitely not the right person to ask about anything video. I don't watch a lot of stuff, so as far as I'm concerned, my Mini is just another component in my stereo.