I've built many a PC over the years. What components did you use. You say it's tiny, did you use a Mini-ITX motherboard? I'm primarily interested in the audio side but would like to know what kind of quality you get on the video side.
I'm not sure how simple/complex you want it, but using the Free iTunes software you can "share" your collection with other users on your local SubNet... basically whatever is in the library on the computer is playable through iTunes on any other compuer on the subnet. Really simple and works nicely. You can also encode using Apples Lossless codecs, MP3, and a few other things. It will also rip, and if CD info is available online it will fill in track names, album names, artists, and even sometimes cover art.