This has prompted me to think about building a small embedded system
to convert S/PDIF to and from, for example, an FTP data stream for
sending over Ethernet to a server not in the listening room. Has
anyone tried this or does such a device already exist (at a reasonable
price)?

The PC mags are all very into "lifestyle" systems at the moment using micro
form factor mother boards and a lot of passive or controled cooling to keep
noise to a minimum. Case manufactures are springing up all the time and are
producing some pretty good looking kit, Some even include an infra-red
reciever for remote keyboard/mice which could be converted to r/c the audio
functions without too much effort. Given that the PC would probably be used
on a network with keyboard and monitor removed once it was up and running
(Use RAdmin to control it from another PC) then it should blend into a hi-fi
set up reasonably well.
For your application the hard drive could be contained within the PC
(rather than a remote server) and it could, for the most part, be used as a
hard disc server. Goldwave or similar could handle simple timed recordings
from R3 in your abcence.
It would be an interesting project - cost would be around £800 I suspect
...........which suddenly starts to make the off the shelf hard disc
recorders look good value.

Just a thought but many years ago there was a fad for using VHS video
recorders to record Hi-Fi audio from an FM analogue feed Quality was very
good and it gave up to 8 hours recording time. Can TiVo be made to do the
same without the imitations of a linear tape format? Any TiVo owners out
there know whether it'll take a hi-fi stereo feed?