Well gentlemen, thank you very much for all of your well considered replies, a great deal of food for thought.
In response to Bob's query, I will be feeding the DAC from a USB port it is all it has. The Netbook is blank, nothing on it right now, though I do have a HDD with Win7 on it I could put in.
The machine will be exclusively for this task. Although multi-tasking is a laudable objective, in this case the Netbook would be exclusively for the music.
I am not going to be converting anything right now as I actually enjoy the whole ritual of selecting a CD/Record, putting it in/on the machine and firing it up. I am going through a heavily modified Quad 34 pre and 303 Power amps into ESL 57's.
I am not unfamiliar with a command prompt in Unix
The deal is this. I started collecting a VAST number of MP3's way back when and I would like to improve their presentation. There is nothing I can do about the files now, I have what I have.
As much as I love to think I can spend time sitting down enjoying my 'wonderful collection' practicalities are otherwise. I travel a LOT so my iPod and headphone amp are my friend. I have slowed down a bit with the "away from home" thing so slowly I am getting back into my home setup. If I can find either Vinyl or CD replacements for some of the music in MP3 format, I buy it. But that is not always the case.

At the end of the day, the Squeezebox and NAS proprietory solutions are just consumer boxes for ease of use and configuration - I am not decrying them, I use them myself with good effect - but it would take me all of ten minutes to build one myself with a couple of terrabytres in a RAID 5 array. I DO NOT WANT THIS. I have a storage box already and it is not always on. It is a matter of minutes for me to drag stuff accross the network onto a notebook hard drive and plug it into the netbook. Also, i get to put a compilation together for that evening.

Following on from Bob, I would have thought that spreading your files over a few drives makes life that bit harder. One big disk would make things easier both in terms of organising your media and backup (I'm sure you've got this covered).
With the deepest respect I have recovered a LOT of data during the last twenty years and I get extremely tense when everything is on one drive. Okay, I could put it all on one drive from a number of drives but then what happens is you become lazy as it is easier to just keep updating that drive. Then you wreck! Remind me to tell you sometime about the RAID array that failed and the backup drive that hadn't sometime.

What I want to do is just connect my Netbook to the Hi-Fi and play music. I realise there will be a bewildering number of options available to me - But never having tried this I am not anxious to re-invent the wheel - So Here I Am!

Thanks everyone for the suggestions so far.