I can only respond in general terms:
* the basic issue you are describing sounds to me as simply a matter of inadequate storage capacity, rather than a fundamental topology problem. The files you need/want to keep (apparently) occupy nearly 100% of your total storage space, and based on what you've described, my initial reaction is more or less that building another machine to act as a file server only transfers the problem to a different machine, but doesn't solve the root problem; namely, insufficient storage capacity. I'd say you either need to re-evaluate what data you are holding on to, and either copy it to backup media, or if you've already done that and can't pare it down any further, to add more storage.
* whether or not you'll encounter any bottlenecks will depend on the size, quantity, and frequency with which you try to access files on that other machine. If you will be accessing high numbers of large files on a very frequent basis, then Yes, it could be possible to overload your network. On the other hand, if you will be accessing smaller files on an occasional basis, then you would be unlikely to see any bottlenecks. As they say "it depends".
* Regarding a file system, my recommendation would be to go with what the distro developers have made the default, but that being said it should be a journaling system such as ext3 or reiser. Personally, I use Slackware and SuSE on my machines, both of which use reiser as the default and I have not had any problems with it at all. (If it's good enough for Patrick, it's good enough for me
As for the distro itself, I would suggest using whichever distro you have the most experience with and are most comfortable with. The idea here is that should anything go wrong, you'll have a better understanding of it and how to fix it.
Overall, I guess the main question that I'd have is whether or not this proposed box would essentially be used as a secondary storage device for one single user (meaning you) or whether it is intended to be used by multiple people such as in an office. It sounds like it's the former, and if so, and you will just be accessing these files on an as-needed basis, you might want to consider just building a second low-budget machine that you can connect to via FTP on a multiport router.
That's the setup I have - I've got a 4 port router to which all my machines are connected to. If I'm using machine "A" and need to retrieve or otherwise access a file that lives on machine "B", I can just FTP to that machine and get it. Granted, this is not exactly an example of a stunning technical achievement, but at least for me it allows me to organize my data by machine, while still allowing me to share data between machines. This approach may not work for you, but perhaps it is worth considering.
Anyway sorry for the long, rambling, and probably not-terribly-helpful reply, but if I understand your situation correctly, I gather that you don't really have the option to install any more disks on your local box despite the need to add more space. If that's the case, one option that you would have would be to set up a small local network by purchasing a 2 or 4 port router, throw an inexpensive home-grown machine onto it with big disks, and migrate data from your primary machine over to this second machine. Perhaps that may solve the storage issue you're facing, although admittedly it's definitely a very basic and limited "solution". Good luck with it either way -- J.W.
