Yes but DVD compression is old school mpeg2.
I have all my music in iTunes. All of it.
I also have all my DVDs, I simply rip the DVD to the Mac using the H.264 codec (which Apple are pushing which gives me a file almost indistinguishable from a DVD (and is at DVD res) and consumes around 1.2GB.
All these movies are in my iTunes.
I have 500GB of internal storage which cost about £120 and that's plenty for my music (about 15GB) and my 150 movies (about 180GB).
All my music and photos sync to my 60GB iPod as do my favourite 25 films. (and there's still loads of space left).
But everything in on my Mac.
Using Front Row (the media centre software) and a DVI->HDMI cable I can pick and watch all my movies on my big tv, as well as my phoots and listen to my music.
That's because my big tv and Mac are within a few metres of each other.
When I move that won't be the case.
No problem, I will buy that £199 Apple iTV box and it will stream all that from the Mac to the living room. It just means my Mac has to be always on, which it is anwyays.
Oh, and as I do have a fair bit of time I suppose invested in all this, my Mac backs up to an external 500GB firewire drive every night. A complete, bootable mirror of the machine.