Erick Schonfeld at TechCrunch says that the Netflix STB will be hard to sell for many of the same reasons I’ve noted before.  Erick did talk with an LG rep to see what some of the form factor possibilities might be, and one of the options is said to be “a Windows Media Center Extender with WiFi that lets you stream all your music, photos, and personal videos from your PC to your TV.”

This is the best option for Netflix for many reasons.  First of all they can reach a large audience right off the bat without additional hardware purchases.  The Xbox 360 already serves as a Media Center Extender which means you have over six million boxes in the US, and there are a growing number of other options.  You can also reach millions of people using Windows Vista Home Premium/Ultimate which include Windows Media Center.

Best of all, Netflix could launch this tomorrow by just providing a simple download to Windows Media Center users which would automatically extend to all Media Center Extenders.  Microsoft doesn’t even have to be involved here, development for Media Center to open (although Reed Hastings is on Microsoft’s Board of Directors).  Being able to reach this existing market will be key for Netflix in the future.

More Netflix coverage at Zatz Not Funny, Reuters, AP, NY Times, Brent Evans

Update: I've been reading a lot of the comments online about this and the one thing people don't seem to get is that Netflix isn't really looking to replace their existing system with streaming.  Streaming is a complementary feature to mail based delivery, it is not meant to replace it.  Because of this, it is very important to understand where Media Center and Extenders come into the picture.  It is not about having to buy a new device to get this functionality, it is about having it in other devices that will be in your home anyway. Complementary is the key word.