Nice.
As I had mentioned previously, this is what I am in the process of doing.
Do you mind telling about the computer you built for this ?
Is it RAID ?
How many movies can you fit per Terabyte ?
What do you use to rip the DVD's ?
Will it upscale to 1080p ?
Do your rips maintain 5.1 sound ?
Actually, my computer is hardly extraordinary. It's an off-the-shelf HP from Best Buy -- (I'm doing this from memory, so I may be a little off) ... Intel Dual Core, 2 gigs of memory, 500 Gigs of storage on the computer. Its a good solid PC, but not a specialty computer. It was a $900 computer a couple of years back. I run two AppleTVs, an n-wireless-router, and an additional terabyte of storage ... that's pretty much it. Each AppleTV is about $200, the router was $60, and the terabyte was about $100.
I'm about 3/4 full on the first terabyte, and will be getting a second in the near future. A standard movie takes up about 2G (though size can vary). Most hour-long TV shows are about 1G, and a half-hour TV Show is .5G or so. You can store A LOT on a terabyte ... I've got 280 movies or so on there, all 7 season of 24, most of The Unit, most of House, some Star Trek, and scattered episodes of The Big Bang Theory, Friends, Seinfeld, Smallville and Mythbusters (as well as a family photo backup file, and some Itunes music backups).
Putting the movies on the computer is a two step process ... rip the DVD, and convert to .m4v for AppleTV compatibility. It takes about 20 mins to rip a DVD, and an hour or two to convert it. A ripped DVD file is usually between 4G and 8G, but you can delete the source file once a converted .m4v file is created.
I rip the DVDs with DVDShrink (which is outdated, but free, and still works on most stuff) or MagicRipper (which is not free ... but works on everything and has a free trial). DVDShrink doesn't update (lawsuit shut it down), so it can occasionally get hung-up on security (Disney DVDs are always a problem) ... but MagicRipper can typially crack the ones that DVDShrink can't. I'm about to try another ripping software (DVDFab) to see if I need to buy MagicRipper ... I'm still on the trial run.
To convert the file, I use HandBrake. This process takes an hour or two per movie, though ... so I usually queue up previously-ripped movies to process overnight. After that, just load them onto ITunes, and Sync the AppleTV (like an ipod), and you're good to go.
The remainder of the changes are cosmetic ... adding movie poster/DVD covers, etc through iTunes. I've added most of the DVD Covers/ Movie Posters manually, but there is a separate program (called MetaX, I think) that you can use to tag movies with actors, directors, episode descriptions, and posters/covers. The posters (like album covers for iTunes music) certainly helps the appearance on the AppleTV, and episode descriptions are extremely helpful for TV shows (especailly for 24 ... "Day 3: 2:00pm - 3:00pm" is meaningless). The rest is just for cosmetic purposes.
For what its worth, the AppleTV can also play any iTunes music and Youtube videos, and you can use it to buy or rent movies online.
I'm not much of a techie guy ... but I'll answer the rest of the questions to the best of my ability. I've never noticed any sound issues at all. The picture looks great on a large 1080p TV. It isn't HD (as these are standard DVDs), but it is as good as the DVD itself. I think the terabyte drive is RAID, but I'm not sure ... it is a SeaGate TB I bought at Fry's.
SnakeDoc