Yes, it works fine with any Blu-ray drive that can can write to something, even if it's a CD burner. You have to rip with MakeMKV to your hard drive, thus removing encryption and DHCP, then play with Plex or XBMC.
How is the quality. Is the mini able to handle 1080p without issues?
All the current Minis will handle 90% of Blu-ray movies without a problem. Most of the others are fine for 90% of their playback - the exception are the parts that have very high bit rates (Blu-ray videos often have variable bit rates). A few VC-1 encoded videos (such as the Planet Earth series) are extremely problematic, even for those with quad-core Macs. The way around these problems is to use the latest Handbrake SVN to transcode to mkv (for DTS or AC3) or m4v (AC3 only) containers with H.264 encoding.