Unfortunately my hobbies mostly consist of computers and cars, both are expensive and i dont really earn that much

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Im currently still living at home, so living expenses are down. I worked hard for about 8 months saving every penny to build that server. I did cop a lot of crap from people saying its a waste etc etc, but the way i see it... I gained a lot of experience and knowledge building/working with PCs, as a result i currently work in IT in the city

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So for the $15-20k ive spent on computers in the previous few years, its allowed me to start building a career, which is going to be worth a lot more than that in the future.
Nothing wrong with that, you have to sort priorities and computers shouldnt really be number 1.
Anyway, if you just want a server for $500 you'll actually get a lot of performance. As i mentioned above, you can build a decent server (good for torrents and file sharing) for about 200 or so. It wont need a monitor (just remote desktop from another PC).
Power consumption is something to take into consideration... A Quadcore setup with 9800GTX SLI can draw upto ~750w, which would cost you 11c/hour, which is almost $1000 a year...
I personally would stick to AMDs, they offer the best power consumption OVERALL. (Intel CPUs are about the same these days, but the Intel mobos use a lot more power due to their design, so including the mobo AMD are still a long way ahead).
So yeah, as a headless fileserver/torrent box a AM2 LE1200 ($38) will be more than enough, if your going to use the PC then its probably worth picking up a AM2 X2 4600+ ($71).
1GB of ram again is enough for torrents and fileservering, if your going to use it boost it up to 2GB.
Remember, you dont want to have your OS on your storage drives, or save torrent files to it (as this causes excessive read/writes which wears the drive. Get yourself a "thrash" drive, basically something crappy to download to. When the file completes, copy it to the storage disk/array)
Onboard raid (which is software raid) is ok, but is limited to Raid 0 and 1.
RAID It also uses the CPU for Xor calculations if you use software raid 5 (meaning the CPU has to do a lot of work, this can slow down a system a lot, especially during rebuilds).
The other downside to onboard raid, is if your mobo dies you'll need to source the EXACT same motherboard to recover your array. So there are a few downsides.
With a hardware card, you simply plug it in and away you go. It does the Xor calcs and is not motherboard specific.
Well i guess its personal choice... Dont use Vista. Just dont. XP is probably my choice, as it can be stable if setup correctly and probably the easiest to get working with other PCs/media devices.
Not sure what your using the fileserver before, but if you download TV shows/movies (only legal ones of course) its worth investing in a network player... EG
Mediagate Prices
Basically you plug them into your TV and they'll play media from your PC/Fileserver over network lan or wireless. Ive got 3 of em in my house, so family members can each watch their own TV shows simultaneously. (legal downloaded ones of course) Its 1000 times better than foxtel, as you choose what show you wanna watch, when and completely commercial free. Give it 5-10 years, and foxtel will be out of business.
If i was in your position id probably buy the following...
Am2 LE1200
1GB ram
Gigabyte S2 motherboard (onboard video)
Coolermaster elite 330
OS HDD ($40-50), something cheap second hand.
3 X 750GB Samsung SATAII Drives.
TOTAL cost, $533.
Format with XP, setup remote desktop and away you go. Basically then the server can sit somewhere out of the way (Garage etc). If you need to access it use remote desktop. Share the drives out with write permissions then map the drives on your local PCs. If your running gigabit at home its worth changing the motherboard to something with a gigabit network card.
Data transfer over 100mb/s will be about 7-9MB/s, over gigabit you should see upto 40MB/S. Honestly when i originally built my PC (although it was a gaming machine as well) i had to spend a fortune to get 2TB of storage ($1600 for drives, $400 for raid card). Now you can get 2TB of online storage INCLUDING the server itself for $500. Pretty impressive really.
If you spend $700 you could get 3.5TB of space, although you'd probably want to upgrade the case to something bigger/better.
Still, thats a hell of a lot of storage for very little cost.
When you get around to building it, drop me a PM. Ill help you out...
Cheers, Errol.