I am looking to make a media server using XMBC on a Linux distro. I have read about XMBC and it seems to be the go-to software for what I want. I am unsure of how to set it up though, and more importantly which Linux distro to use. I am the most use to ubuntu, but still have very little experience with it. I am also going to make a home server just to back up some of my more important files and would like to be able to do both via the same machine. I am going to be using an old Dell Inspiron and will be adding an extra hard drive or to. Any suggestions or advice would be great.
Solution to your problem: XBMCbuntu (<-- clicky). XBMCbuntu is a lightweight Ubuntu with XBMC pre-configured. It should fire up straight from a live boot (via USB, CD/DVD, etc) and you can install it from there.
That sounds like exactly what I need. Is it able to function as a regular OS otherwise though? I was also trying to fit in a NAS of sorts into this project
It's in the FAQ; it's based on Lubuntu 12.10, so yes, you could use it as a regular OS. Just bear in mind that Lubuntu is aimed for underpowered and/or old hardware, so it will lack a lot of flash and may not include the kitchen sink like the full-fledged Ubuntu. However, you can install whatever you're missing.
I don't have any experience with setting up a NAS, but I'd imagine you can do that with Lubuntu, and by extension, XBMCbuntu.
http://wiki.xbmc.org/index.php?title=XBMCbuntu_FAQ