Well after a bit more experimentation I found this thing called TboPlayer which is a GUI that is a frontend for OmxPlayer so it enables the Pi to do more user friendly media playback stuff.
So Pi as media player looks even more feasible.
Storage costs also vary, and if you can get by with 128 GB then this will cost about $60 and this is roughly the same price for either a microSD card of that size or a pen drive that plugs into one of the USB ports.
There is still a lot of thought to go into how best to utilise this thing but as a media player it looks like it does have a surprising amount of capability for such a tiny and cheap device.