It depends how you all System Network is configured and how you want to work, and if there is one user, or few.
If you use External HD on a host computer the computer would be partially tied down with the streaming task.
If you would like more serious flexible system you should go with Windows Home Sever (WHS).
WHS has ad-ins that makes it a very good Movie/Media vlibrary, management, streaming computer, and an excellent backup/restore for you other computers.
If you have an old P-4 and above spare computer you can give it a try for free.
Otherwise you have to buy, or build a server.
The difference is that a 1.5 External HD drive would cost about $150.*
WHS from scratch (i.e buy new or build from scratch) with 1.5TB HD would be about $400.*
Search the General Hardware forum for the term Windows Home Sever or WHS, and you would find few good treads with discussion about the topic.
Few links.
http://www.ezlan.net/WHS.html
Download trial version,
http://www.microsoft.com/downloads/...FamilyID=e3694b69-93f6-4267-b881-55ce0648c784
Ad-ins,
http://www.whsplus.com
* Prices can be lower if you find good BF deals.