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.