I just recently got a Rasberry Pi and installed RaspBMC. The idea being to have a stream device for the bedroom TV.
In the TV Room I have a Hp Microserver that is the download machine as well as the media storage device. Then I have a Mede8er to play the files from the Microserver.
I have never had a days issue with the Mede8er and it really does play anything, but at R2500 they are not cheap and I really did not want to invest in another one. Also I wanted something different and with a little prettier interface than the Mede8er.
As said before the Pi can be a little tricky to get installed and working, I actually bricked mine 2 days after owning it, and had to start from scratch. Now that is running, its working fine, plays nearly any format, and as long as you do not power it off it runs over WiFi with no issue at all.
I have streamed a 10Gb file to it and it ran seamlessly.
Audio is taken care of by the RCA outs from the TV to a 2 chl amp and then to two small speakers. I want to get a earphone jack to RCA cable to use the Pi directly to play the audio, I think the Pi's DAC is a lot better than the one in the TV.
One great feature that I stumbled across is that my Sony TV remote controls the Pi! I assume its thru the HDMI port. But it really is a nice extra. Play, top, fast forward as well as menu navigation all from the remote.
The next plan is to mount the Pi to the back of the TV so that is totally out of site.