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I'm pretty sure on PS3 the music does need to be directly on the drive, I have a media server set up, and its one of the things i like about xbox360, because i can use custom music streamed from my pc - albeit it doesn't sort it very well. Honestly though I go with the music from the game most of the time.

If you upgrade your hdd up to 320 or 500gb that will help out a lot (I went up to 320gb) - however most games don't support custom soundtracks on PS3.