I'm currently still using my old Microsoft Xbox as my media center and it's working fine so far but I do have thoughts about the future. The Xbox will not last forever and the new Xbox 360 cannot be modified to do the same yet. One alternative that I investigated was building a computer for this purpose and I'm almost sure that I would use the Geexbox Linux distribution as the operating system.
The distribution has a size of 8.9 Megabytes and comes with an unbelievable amount of features. It is a self-bootable Linux distribution based on the excellent Mplayer which assures that it can play (almost) any file that you throw at it. It plays MPEG 1/2/4, Real Media, Windows Media, Ogg and Matroska and audio and network streams.
The multimedia files can be loaded and played from various sources such as CD, DVD, HDD, LAN or even Internet. It's all there, it's tiny and booting really fast. It should not have problems with most hardware setups. The requirements are 64 Megabytes of RAM, a Pentium class cpu (400+ Mhz recommended) or a Mac G3+ (G4+ recommended), an an ALSA compatible sound card, a VESA 2.0 compliant graphics card and a CD or DVD drive.
You can download a prebuild ISO image, sources or Debian repositories from the developers website. There is also a list of supported hardware available which is great if you run into troubles or want to build a computer that can run the Linux distribution.
Update: Geexbox 3.0 has been released in September 2012 introducing several new features and updates that improve the distribution significantly. This includes installation support for Solid State Drives and UEFI systems, improved remote control support, the XBMC Media CEnter 11 frontend as well as updates for system related packages and programs. Note that Geexbox is now also available as hardware in form of CuBox, a small lightweight device.
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Ghacks is a technology news blog that was founded in 2005 by Martin Brinkmann. It has since then become one of the most popular tech news sites on the Internet with five authors and regular contributions from freelance writers.