Exactly what sirquack said. To take the movies thing a step furture... you can encode the DVD's into mpeg4 (divx, xvid, etc) to shrink them to ~1.5gig size and store them for 'online' access. I've done this and its really cool to simply open My Movies in MCE (its a plugin), browse all your movies by title, search by actors, directors, if you've watched it recently, etc. If you don't want to shrink your movies you can still use that plugin as a database but tell it the movie is offline, so if you click on it, it will pop up saying you need to find disk X (if you choose to label your DVDs).

Computers rule. Basically the only limitation to a HTPC is what you choose to not figure out how to do. If that makes any sense.

-Ben
HT v2.0
HT v1.0