I have this exact setup. I bought a cable to connect my previous generation mini to the DVI input of my T. I have a bluetooth keyboard and mouse for the times when I need to do something a little more complicated than use FrontRow. iTunes has all my music and I have a 2GB TimeMachine with all of my video content. It's fast enough to play even 1080p movies over the network.
The new model would be even better for this application.
The new model would be even better for this application.