Yep, you can store as much music and photos on it as you can fit on whatever storage it has (making sure you don't fill the hard drive right up, obviously) without effecting performance.
When it comes to specs most netbooks are pretty much the same, things to look out for are...
Screen size
I wouldn't go for anything under 10inch, much smaller and there are too many compromises with both screen size and keyboard size.
Hard drive.
I'd go for one with a proper hard drive of at least 160GB, the ones with solid state drives in them are either very limited on storage space or hugely expensive.
Ram
1GB is the normal, if you go for a windows7 based one consider upgrading this to 2GB
CPU
All intel based netbooks have atom CPUs in them but they are not all equal, the basic ones are single core 1.6GHZ, or 1.8GHZ, the newer, higher power ones now have dual core atom CPUs giving better performance but at a higher price.
Operating system
Several still come with windowsXP, which is actually fine for a netbook, newer ones come with windows7 but you pay a bit extra, and the really cheap ones come with linpus linux, which is dreadful in my opinion (I've installed a ubuntu based Linux on mine and it works really well)
I've got an Asus eeePC which are very well regarded, the samsung range of netbooks also always do well in tests, other brands (such as HP, sony etc) tend to perform about the same but cost a lot more!