The Squeezebox uses your own library to work. (It can also work with internet radio.) I believe it works with iTunes, as well.
The Slimserver (which the Squeezebox uses) is installed on your computer. You use the server to send the audio data to the Squeezebox. The Squeezebox is hooked up to your stereo, either via analog or digital connections. There is no monthly charge; you're using your own music library.
I'm currently using the Slimserver software on a Linux box with 300 GB of FLAC files. I have a wired ethernet network in my house (you can also use wireless), and I control the server with a laptop. It's really a slick setup, but you can get away with a lot less.
Michael