Did you explore J. River Media Center? I don't use it for this, so I can't provide specifics, but I'm pretty sure it can do what you want. It's very customizable. I know it can play ripped DVD directories - so you would not need to convert to ISOs, though it can play those too. It acts as both a library server and client, and I understand the latest version even makes the library server read-write, so changes you make on a client with be written back to the server.
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