Yes, you can. On your Windows 7 machine, you need to share the files. I have all my media saved in my RAID drive (D , so I shared all of D: (This is usually easiest). To share the files, what you need to do is browse to the folder they're in, right click on the folder->Properties->Sharing->share->select the users you want to be able to access the drive remotely->share.
Be sure to select a name for the share you can remember! I suggest something simple, like "Movies."
You then log on to your Windows XP machine, go to My Computer->Tools->Map network drive
At this stage, you should select the drive letter you want the share to be assigned.
For the "Folder" option, the path should look like this "\\7 machine's name OR internal IP address\Whatever you named the share\" (without quotes).
If your login info is different for your 7 machine, click "Connect using a different username." It will then bring up a login box.
For your user name, you need to put "7 machine's name\your username (on the 7 machine)" (without quotes) and then your password.
At this point, it should connect you to the share. On your Windows XP machine, go to My Computer-> Z:\ (or whatever letter you assigned to the drive), and you should be able to browse the share. To play a movie, just double click the file and it'll automatically stream across your network. In order for the best performance, you should make sure that both the share and the Windows XP machine are connected via ethernet. Wifi can be a huge detriment to performance.
Sharing isnt much of an option unfortunatly, I'm attempting to leverage Media Centers ability to stream a tv card output to an external source which isnt an option with basic file sharing also ethernet isnt an option due to location of the modem otherwise i wouldnt bother with the xp machine at all and just use my xbox to stream it.
Ah, I think I understand what you're asking now. I incorrectly interpreted you when you said "set up as a media server."
So let me get this straight-- you want to do video out from your Windows 7 machine (via HDMI, DVI, RCA, Component, coax?), have that go to your XP machine, and then have your XP machine output the video feed to the TV?
Close but no, W7/vista "media center" as functionalit to stream various media sources to an external device via a network (media center extenders) an example is the xbox 360 which can be setup to work like this. im trying to figure out if theres a way to configure an XP machine to act as an extender.
It can share a live stream (of TV) across your network to your Xbox or other media center extenders, which you have to buy. Computers cannot in fact be used as media extenders. A simple google search would have told you all this.