This sounds good. The DSM-520 ALMOST works, but has some annoying problems that I'm hoping they fix some day. Some things I would be looking for in a device like this:
Critical
* The device should be as simple and plug and play as possible. If users have to edit config files, you're in trouble.
* It should have both an Ethernet port and 802.11g wireless and should support WPA.
* It should include a remote.
* It should be silent or nearly so.
* It should support MPEG2, DivX, XviD, MP4 and H.264 along with standard audio formats.
Important
* It should support multiple-speed fast forward and rewind on videos. The DSM-520 only supports about 2X fast forward, and rewind is dodgy. Not all video formats work with FF/RW. A 30 second skip button would be nice, as would an 8 second repeat.
* Software/firmware upgrades should be easy. If everything boots off a CF card, make a utility that copies the OS image to any CF card of adequate size. Then we could easily switch between software versions.
* I don't care about heavy duty tweaking, customization, or other remotes, but some people will. The device should have a plugin architecture at the very least.
* The ability to play HDMI/HD video is important, as is 5.1 audio and optical/digital out. A lot of people don't use these now, but you should be building the thing to work two years from now.
Nice to have
* It should support album art and file queueing.
* The device should have a couple of interface skins to choose from. Nice ones!
* A home theater form factor would be nice.
* Streaming DRM music would be really nice for some people.