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A 500 GB hard drive may be a bit small if you intend to store video or any other large files on the server. This comes from experience as my old file server has a 1 TB HDD that's almost completely full of home videos. I'd suggest a 1.5 TB HDD if you're doing much with video since that is the size of hard drive at the moment with the lowest dollar-per-GB cost as well as being close to as big of a unit as you can buy today. The rest of the parts look fine unless you're going to use this file server in a situation where it absolutely MUST work perfectly ALL of the time (such as being a file server for a business) instead of a situation where it's fine if you have to occasionally reboot. In that case, you'd want to use a motherboard that supports ECC memory such as one of the ASUS socket AM3 motherboards, get some unbuffered ECC DDR3 memory, get an uninterruptable power supply, and set up a redundant (RAID1) hard drive array. That would cost a lot more and probably be unneeded for home use, but I'll just put it out there in case you're wanting to build a file server for work or something. The parts are plenty powerful enough as this proposed build is about half as fast as my old file server, and my unit has absolutely no problem saturating the gigabit Ethernet connection between it and my desktop when transferring files.
I was not aware of a particularly high failure rate in new >1 TB drives. Seagate had an issue with some firmware in their original 1 TB and 1.5 TB 7200.11 drives that could brick drives with a non-updated firmware, but that's been rectified. My file server has one of those affected drives that has been updated and hasn't given me any problems in the ~18 months I've had the drive.
Low-RPM "green" drives are a real mixed bag. I'd highly recommend them for a file server that's going to be stuffed with a ton of large drives since three and four-platter low-RPM drives are very easy to keep cool compared to comparable 7200 rpm drives. The Seagate Barracuda LP 1.5 TB in my desktop (three-platter 5900 rpm) runs at 20-25 C. The 7200.11 (three-platter 7200 rpm) in my file server in a similar HDD cage runs in the high 20s to low 30s C. However, the low-RPM drives are noticeably slower. That may or may not matter depending on how the file server is used. If it's just a machine that gets backed up to overnight, then it's no big deal. If it's a shared network drive that is in use by several people at once, then I'd strongly suggest getting a much faster setup based on 7200 rpm or faster drives.
oh and you might want more ram, heres the cheapest decent ones that would work:
The amount of RAM he needs is heavily dependent on his choice of OS and programs he intends to run on the server. If he wants to run backup and media-sharing programs on Windows Home Server, 4 GB would be a good idea. If he simply wants to have a shared directory on the network to store files and runs a 32-bit Linux server (no X) install, 2 GB of RAM would be way more than enough as it would only need about 50 MB of that RAM.
Here's a link to an article in the January 2010 edition of Maximum PC about using old computer parts to build a free NAS server. It doesn't need to have the latest, greatest hardware unless you really need it to, but it uses FreeNAS (which is, you guessed it, FREE) as the operating system. The machine can also be utilized as a web server, along with other functions if necessary. Take some time to read the article thoroughly. I may wind up doing this myself as soon as I finish building my new system.
Sorry to dredge up an old post but I just finished my home server build last week, I put in an Asus G31 mobo, intel Pentium E6500, 2GB Crucial Ram, 2 x 1.5 TB Samsung spinpoints, a Corsair PSU (450w) into a cooler master elite 330 case. Ohh and used a Tuniq 120 Ultra for cooling (a bit overkill but does the job)
If you want this to be true server out of the way then the above has worked great for me, it runs headless os the onboard graphics is more than enough for the needed installation part and that's it. The OS I chose was Windows Home Server - its built on Server 2003 but has some great add-ins! You can download a 30 day trial from Microsoft, that's what I did as a try before you buy!