I have a Windows Home Server-based HP MediaSmart server in my utility room which I install all my media on and runs 24/7.  I would like to install CasaTunes on the WHS and use an external USB audio card instead of your PCI-e based card since there is no PCI-e slot and I do not want to run a second computer 24/7.  In the XL Operations Manual, Advanced Guide, pages 22-24, the manual describes using other hardware besides the XLe. Would I only purchase the Casatunes software and another multisource controller or is there a way to use the XLe with an external USB card as described?  It sounds like the main functionality I would lose would be using any other external audio sources.  Is this possible.  I’m planning to use my Iphone and Itouch as controllers for both the whole house music system and other home automation functions.

The XL products do require a full-height PCI-e slot. You could either purchase a very inexpensive PC to install the XLi or XLe in or you could purchase something like the NuVo Essentia and use the audio outputs you have, or from an external USB audio device, as sources for the NuVo.
If you try to use the USB audio card as your complete system you will lose several nice features. The main one is that, other than with the “Multisource Media Player” selection in the controller tab, you cannot control the Volume/Mute in each room. With the Multisource Media Player you and others cannot be changing music, view music, etc, on different user interfaces at the same time, since CasaTunes thinks you are in the same “room” and I think it would be very confusing. Since there is not a switch to control the routing of your sources, you could not listen to the same source in different rooms (none of the Zone Group features would work), you could not use external sources, you would lose the ability to go to another room and select the same source to continue listening to music you were listenting to in the first room, etc.
On the other hand, you are correct that CasaTunes can control any audio device that Windows recognizes as an audio device. The exceptions are when using various outputs from one audio device in older operating systems, such as XP, Windows 2003 and WHS (which is based on 2003). For example, these operating systems will not let you play music through the 7.1 outputs and the headphone outputs at the same time, whereas Vista and 7 will. (that is why our XLe only allows 4 internal sources or Music Players in XP, 2003, and WHS, but 5 in Vista and 7).

Short answer : you could use a USB audio device, pick the Multiroom Media Player in the Controller tab of Setup, configure the sources to use the audio device, and change the source names to room names. You would be limited to 6 “rooms” max (less than that depending on the version of Windows that you use and the audio devices available on the computer) and you would lose some features as described in the previous email.