An Xserve rack would be the way I would go, if I had no constraints.
Easy to manage hardware with high build quality, room to add tons of increasingly low cost storage and built-in RAID support make a convincing case for this approach to me. Your equipment closet would not necessarily require redesign to accommodate the new equipment either. The easy administration features of Mac OSX server and "lights out" management features of Xserves should allow you to locate the rack (or racks) containing servers/storage units elsewhere onsite (preferably in another location with power conditioning and plenty of forced cooling). The only equipment required to be installed in the HT room is the unit that actually contains the Audio/Video Input/Output interface (A/V I/O).
Ultra-Hi-Quality A/V I/O interface options for Mac towers and Xserves should be researched. I know DVI output and optical I/O are standard on Mac towers and upper end Mac laptops, but the options are available that fit in an Xserve should be evaluated. If "the really good stuff" can't fit in the low profile or full size rack format Xserve CPU chassis, then something that will fit in a tower will be needed.
Originally Posted by rlpiii
One of my friends has been trying to talk me into building a HTPC with apples for a few years now using rack mountable x servers.
It would be interesting to see apple (the company) get involved in this market.