I have a small form PC purley for music duties (Viglen MPCL). Its very low powered (500Mhz), which is ok for streaming music to my Squeezeboxes, but is painfully slow when something goes wrong, needs a re-boot, or a software update etc...
You can however get Atom powered nettops, around the 1.6Ghz mark, which will be quite nippy for music duties, and yes, you can put a 250GB HDD in them, as they normally take laptop hard drives.
My small PC has no monitor on it, so it just sits in a cupboard - I use my netbook to 'remote desktop' to it via XP when I need to access it.