I just set this up last night. Got it running on WinXP SP2, but ran into a few gotchas.
1. Recordings drive letter != HME/VLC installation drive letter.
Of course this is fixed by adding "--datapath X:\" to the command line, but it would have been nice for this to be included in the installation docs, rather than having to go scouring to find the answer.
2. Path names with spaces in them are not really handled well. Adding double-quotes around the paths didn't seem to correct the problem, and resulted in a different kind of path name parsing error instead. I remedied the situation by renaming the directories and filenames to remove the spaces.
3. Begin playback of one video. After a short while, left click out of the recording and get back to the file browser. Choose a different video and select it for streaming. Playback commences, but of the FIRST video, and right at the point from which you exited it in the first place. Once you're in this state, it doesn't matter how many times you exit and select a different video, you'll always be returned to the original video when you try to play anything back. I had to kill the ffmpeg window in order to play out anything else. Is there a feedback mechanism between HME and ffmpeg (or VLC) to halt it from streaming when the user interrupts playback ?
Other than that, this is really cool. It will handle most playback cases, except for high resolution (>720p) sources, which my current machine can not stream in real time. pyTivo will have to suffice for those videos.