Someone please 'splain me

I want to set up a hard drive system so that my wife can enjoy uninterupted music as she is working downstairs. I'm somewhat familiar with the steps involved, but have several specific questions. Here is our setup:

One room upstairs:
Cable internet connection with PC connected to wireless router

Other room upstairs:
Audio system - CDP has digital input with USB-digital converter

Downstairs:
Networked PC

Questions:
1) Which 250GB external hard drive should I buy? I'm hearing conflicting opinions about what works/doesn't work with PC
2) Should I simply hook up the external hard drive in the audio room to a laptop, or....
Should we put a wireless Squeezebox on the router in the computer room upstairs, and is it even worth the expense to do so?
3) What cabling will I need?
4) Can my wife control the music from her computer downstairs?
5) Is iTunes the best music organizer for our needs?

And finally, do you think we need to install $1100 PC's on all of the CPU's? Only kidding, cable flamers...

Thank you,
Howard