I use Freevo on Xbox to watch DVD(don't have the remote) and adding HD is not too difficult. There are people change it to 120GB ones but one needs a PC to prepare the HD. I opt for using samba client and use the disk space on my other PC(running XP and colinux).

Xbox is pretty cheap now, can be as low as 100US on ebay. It is a pretty capable machine for this kind of thing. Just a TV out card can cost you that kind of money.