I use an AppleTV to do what you're doing. My entire music collection resides on the AppleTV, so no PC/Mac has to be running to play it, nor do I have to tie up an iPod Touch on a dock. Plus it does movie + TV rentals & purchases.

It all works perfectly & seamlessly. With HDMI & toslink outputs to my TV/AVR, and lovely on-HDTV screen artist/album/playlist navigation. And the software to control it is free from Apple, which lets me roam around the house and choose music wirelessly on my iPhone, no dongle required.

And it supposedly does support internet radio streaming too, though I have not tried it and it is not really a documented feature. http://www.macworld.com/article/135380/2008/09/addradiotoappletv.html

Everyone's opinion differs, but in my iTunes/iPod-centric household, the AppleTV has been a fantastic piece of technology that was well-worth the cost. IMHO, if you're living with and content with iTunes and iPods, the AppleTV is the best solution for bringing that experience to your home theater.

M80v2 | VP150v2 | QS8v2
SVS Pci+ 20-39
Emotiva UMC-1 & LPA-1
M22ti + T-Amp, in the Office