Thanks for all the comments, I've updated the title to reflect what I've done. To answer some questions:
Transcoding is definitely a possibility, unfortunately my web app is written in PHP which doesn't have a lot of support for this. However, I may be able to pull it off with FFMPEG. Any suggestions are welcome.
This definitely will support aliases to any part of your computer's hard drive or any external drives. I've been testing on Debian server with a usb external HD and it streams fine.
ScreenShots to come, I'll probably post them on the site (http://www.ro-connect.com
In The Works:
-Android App for remote control and streaming
-User Star Ranking between Roku and Server