
I bought a WD TV HD in December. It does the decoding, but uses external storage (2 USB ports) It has HDMI and Composite connections so ideal for new HD TVs. It's a small discreet box that I think looks quite nice.
The one thing it lacks is network capability. Well, so really smart people have hacked the Linux on it and have added support for networking so it can read network shares....
Check out the following for the latest.
http://www.avsforum.com/avs-vb/showthread.php?t=1100062
So, for £100 it does all the local media stuff with external drives. Add a USB network adaptor and the updated firmware and you can use it as a media client over your network.
I expec this space is going to get very crowded this year as drive manufacturers want to sell more bigger drives and as the chip sets catch up with the media codecs.