My NSLU (266 MHz) runs TwonkyMedia without any problem. I have a TV with DNLA support (Philips 9604-series model) and 100 Mbps ethernet. 720p and lower-resolution videos run fine, there is only a slight delay when starting the video (a few seconds). There are no hickups once the video has started. I recently replaced my NSLU with a Synology DS209. There I have the same delay so it appears to be caused by the TV.
For HD videos the NSLU or the 100Mpbs connection is too low; there are hickups while playing the video.
Besides Twonky my NLSU is also running Apache and Samba so I think it is safe to say the NSLU is powerfull enough to be used as a media server.
Note that the latest versions of Twonky do not work on the NSLU anymore. I used a license key of a new version in combination with older software I downloaded somewhere else. Google around a bit. If you want to I can send you the urls of the sites I used to get it working.
When you are only interested in Audio; the mt-daapd server works fine on the NSLU also. I had it running in combination with a Pinnacle mediaplayer and that worked fine also. Advantage over Twonky; its free.'
Hope this helps.