You may want to look into setting up a NAS (Network Allocated Storage). Basically, it's a tiny HDD enclosure typically with 2 bays. You can throw 2 HDDs in there and set them up as Raid 0 or Raid 1. Whichever you prefer, data protection or speed. One HDD also works fine. The NAS would be wired into your home network and would be accessible from any PC or 360 on that network. I have actually been looking at this for my home network,
DLink DNS-323. Throw one 3.5" SATA 500GB HDD, or two, in there and you got some sweet storage space.
Newegg has the best deal on those that I have found so far. You can also set-up a FTP server on the NAS too. Which means you, or family members, could have access over the interwebs to all of your files. That's pretty cool.
As for an internal PC HDD, you probably wouldn't notice a diff. in streaming speed between the two. I like the idea of the NAS simply for the fact that I don't need to have my PC on 24/7 and I don't have to have a resource hog, media server running either.
Overall, the internal HDD will be the cheapest solution. The NAS would give you more flexibility.