I'm interested in making xbmc primarily Dashboard, but I wanted to know if I could:

-Run an mp3 library from my Buffalo LinkStation and ply it on XBMC
-Play internet radio stations through XBMC
-View digital pics stored on the LinkStation through XBMX
-Play video files from the linkstation on XBMC

Does anybody Know if any of this is possible.

That would be a yes on all accounts as long as the linkstation uses Samba for network sharing (as does WinXP) and has already proven to work with your winxp setup (ie has no critical software bugs).

The linkstation does not have a dhcp server so you'll need either internet sharing or available extra ip addresses from your ISP to access the internet with your xbox.

I hope somebody who has actually tried this can verify but seeing as its a rather expensive kit, people around here probably dont have those.