1. Buy machine - COMPLETE

I have bought this machine from mini-ITX: http://www.mini-itx.com/store/?c=27#m61g.
The M61G Fanless 1Ghz Barebones Thin Client with 256KB Flash IDE Module + 512KB Memory.

Advantages: Small and noiseless.
Disadvantages (potential): Because it is noiseless I may suffer with some decompressions issues on the fly with some media files. There isn't really a lot of guidance in this area so I will report back with some test results later in the project.

Other notes
Because I don't want stuff sticking out of it, I bought Flash IDE. I therefore need to understand how to do a Harddrive install. The memory is of a decent size so that I can run the final operating system completely in RAM.