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I've read the $60 NAS link above. Is that the direction I should go or is anything more current?I've never built a NAS but have built multiple computers.
You're not building an NAS. You're building a server on which you'll run SqueezeCenter.You may be able to build a decent server from the parts you have. Run Windows Server 2008 on it, put a 1 TB drive or two in it. Get an external drive of sufficient size to back up the whole library.Use the PIII if that's the fastest system you have. Install at least 2GB of RAM for Windows. One TB drives are about $100-120 right now. If the PIII system doesn't take SATA drives then you'll have to add either an SATA controller or maybe just start from scratch with an inexpensive socket 775 motherboard and an inexpensive dual-core Intel CPU. Not including the hard drives, you should be able to do it for under $300.
If I was building this right now, I would look at either the newer Via processor (C something), the Intel atom, or a cheap AMD. I think any of them would work, and you can get a MB/Processor combo for a $100, maybe less at Newegg.