This is exactly what I have done with an old pentium 4 XP box I had lying around. I found the biggest hard drive I had, stuck all my media on it, plugged it into my TV through an average nvidia graphics card and it was blissful. :)
With regards to linux distros, I wnjoy using Peppermint... http://peppermintos.com/
You might be able to find something better, but it already integrates flash and hulu so I like it.
Good luck with the build :)
Tombo