Creating a local library with network shares/drives
Solution 1:
You can add network shares to a Windows 7 library, however, they have to be indexed on the server that is sharing them, install Windows Search 4.0 on the server and make sure you index the folders you intend to add to your Windows 7 library.
Solution 2:
This was the very first thing I tried to do when I discovered libraries in Windows 7. Luckily Microsoft have provided a programatic way to add network locations, so I wrote a tool to make this easy. It also provides some additional features like backup/restore of library sets. You can download it for free (+ WPF source) here:
Win7 Library Tool
Solution 3:
You can add network drives if they are part of your homegroup. I think the drive just has to be indexed by a copy of windows 7 before it can be used in a library. The windows help and support covers what you can and can't add pretty completely. I searched for "library" and when to Libraries: frequently asked questions.