I was also playing with that idea, but find a streaming client more practical these days. I ended up having none of both yet.
Anyway: yes, you can of course scrap such a player to become home stereo equipment. The Studio device may in fact be a bit better suited to this because it has a seperate DAC.
You can fit a desktop drive, if you find a way of adapting it to the smaller plug. Bear in mind the USB bridge can access only one disk and 137 GB (no BigLBA), anything above is wasted. Or you switch the disk(s) to a different USB adapter but that's mory tricky.
Rockbox' ATA driver is internally prepared for multiple drives and/or partitions, this was necessary for the Ondio. It dosn't do BigLBA, but this could be added.
If you change the display, you need to adapt the code for that, too. Use a display that supports serial (SPI) control.
Jörg