The thing is fairly beefy. I am thinking of throwing in some really massive HDDs and RAID (two HDDs with the same memory for protection) them for protection and run this as my media server for XBMCs on other computers.
I haven't setup any server stuff myself, do I simply plug it into my network? What else do I do? Whats the limit on HDD size for this thing?
Windows XP probably should be avoided for anything that touches the network.
For Windows, no important folders are shared by default, so you'll have to add those drives to sharing, which I think you can do in the context menu in Explorer's My Computer window.
You can also use Linux. I think FreeNAS is a Linux distro designed to make it easy to set up an NAS. An alternative is to install a general-purpose server distro like Ubuntu Server and then configure Samba for it.
On systems that don't support GPT, the max drive size is 2TB. Apparently the 64-bit version of Windows XP does support GPT, but I don't know if that support is without issues. If it is, you can you any hard drive with it.