The 500gb drives will be fine. The system "volume" is divided into two partitions during install: 20gb for the actual system, the rest of the drive (or volume, if you are using a raid) for file tombstones and, sometimes, actual data. The tombstones take up very little space. With the latest version of WHS, data won't be stored on that second partition unless all of your other pool drives are full. In prior versions, that partition acted as a "landing strip" for all files that were copied into the pool. I use a 300gb drive and it is more than enough.
I've not set up raid1 for my whs system disk yet, but I plan to if I need to rebuild it before Vail (WHS v2) comes out. Most people seem to have no problems doing so. Just use your on board mobo controller and you shouldn't have any difficulties.
The equipment you already have will be more than adequate for serving movies. Having a gigabit network with a decent switch and nics is the next thing you should focus on.
Well I tried the install with Raid1 and it was a nogo. I gave up and just installed the OS like normal. My only problem is that trasnfering files to it I only get 15MB.
My SERVER setup consists of:
Motherboard: Asus P5K-Deluxe
Ram: Corsair 2GB
CPU: E6400
HD: Seagate 7200.12 500gb hard drive
NIC: Intel Pro GT
Client PC:
Motherboard: Asus P5Q-Pro
Ram- 4GB of G.Skill
CPU: Q9300
HD: Intel SSD 80GB X25M
NIC: Onboard but also have another Intel NIC
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I also installed WIndows Vail and was able to see 50-60MB transfer to the server. IT is only when I Installed WHS that I see the slow transfer speeds.