Tom,

Exactly that. All you need is a new hard drive, the squeezebox, a networking card (wireless or ethernet) and a DAC. If some of the hyperbole is to believed elsewhere on the forum you could get a NOS DAC for £100 and a couple of cables and bobs your uncle.

You should be able to do it for under £500. The results will be worthwhile I am sure. CDS2 quality? I dont know, but it won't be a million miles away.