Unless you have a Squeezebox or have a music server, I don't see any reason to have a giant hard drive. They can fail as easily as an iPod. I back up all of my digital music to CD-R's. I just bought my first DVD writer so I will probably start burning my mp3s onto DVD+Rs. I keep an excel spreadsheet with the contents of my discs. When I want to hear something, All I need to do is find the disc, and transfer the music to my iPod. It's easy, it's cheap, and it's served me well for 7 years now. If the iPod dies, I still have my files.
I may eventually build a cheap box to serve my music and put together a 500 GB Raid, but I will still always burn my music to discs.