I would also like to see this possibility returned, with the prevalence of Cheap Wireless-N kit, a disked MD, (Even running off a £10 USB key so as to reduce noise and power), *should* be able to stream video at a decent rate (certainly if you only have a couple running) and could make LinuxMCE a solution for those (like me) who can't cable their houses.
Interestingly
http://linuxmce.wordpress.com/2007/09/18/tip-6-add-non-diskless-media-director/ seems to suggest that someone has done this in 710, and the "Dropped support for Disked MDs" bit disappeared from the known issues of 710 when it went to RC from beta so it may be that disked MDs are supported.
I'm going to investigate tonight since the last parts of my new LinuxMCE setup have arrived!