I've been using Windows Home Server (WHS) for a little over a month now. While there is still an issue with data corruption if you work on files directly on the server, as a backup tool, it is great. The system is practically foolproof. Install the server, install the connector software on each machine in the house, and let it go. Every night it will back up each computer. In addition, it makes a great location for centralized files. The shares are readily available from each machine. Additionally, it can stream media to devices around the home. I've been using mine for backup and centralized storage but I haven't actually played with the media streaming yet.
For the backing store on my WHS, I have chosen to use a Drobo. Drobo is essentially an easy-to-use, flexible RAID solution. It's not really RAID, but it's similar enough that thinking of it as a RAID isn't going to cause problems. The advantage of the Drobo is two-fold. First, it duplicates everyone on the machine. WHS shares can be marked for duplication. In that case, each file on the share is stored on 2 drives in the server. However, the backup files are not themselves backed up. The Drobo mirrors or stripes each file so they are all backed up. In this way, losing a single drive won't cause the loss of any data. The second benefit is that it makes for a slightly cheaper storage solution. Because WHS uses redundancy for its backup model, it can only effectively use 1/2 of the drive space. Drobo uses striping so with 4 drives, it can effectively use 3/4 of the drive space. This makes storage a little cheaper. However, you have to add in the cost of the Drobo so it's not really significant. Of course, you have a Drobo afterwards...
Setting up the Drobo with WHS was trivial. Ars Technica indicated early on that the Drobo wouldn't work with WHS but I found that not to be the case. I had the 1.1.0 firmware on my Drobo and WHS saw it as a 2TB USB drive. I was able to just add it to my drive pool.
A few pieces of advice:
First, WHS treats all non-primary drives the same. If you have the Drobo plus another drive in your storage pool, you'll lose much of the benefit because any files placed on your non-Drobo will not be backed up. If you use a Drobo, use only a Drobo. The Drive Extender Migrator will migrate all files off the primary drive to one of the secondary drives. Stick with only 2 drives in the machine (boot/primary + Drobo) and everything will land on the Drobo.
Second, turn off all duplication of folders. The Drobo already does this for you. It just wastes space to duplicate further.
Finally, WHS seems to set aside 10% of a drive for shadow copies. Because the Drobo appears as a 2TB drive, this means it will take up to 200GB for shadow copies. You can see how much is actually being used with the Drive Allocation add-in. To lower the amount of space allocated to Shadow Copies:
Note that this is totally unsupported. I think it's safe but I can't promise. Do so at your own risk and only if you are comfortable playing with this part of Windows. If you don't understand the instructions, don't try to follow them.
Note: I'm not on the Windows Home Server team. Nothing said here is official. In fact, using a RAID-type solution with Windows Home Server is unsupported.