I used to be able to pause my streams for a few minutes before playback. It buffered ahead in a cache file to HDD, using the advancedsettings.xml file.
I haven't created a proper debug yet, but I have had this problem for multiple XBMC installs now. I can't seem to get my buffer to continue while paused manually. A cache overflow and buffer ahead will only partially finish before returning "cache full before reaching [...]" message.
If my source is fast enough, however, the buffer will continue writing until the end of the file.
I'm sure someone else has had it working this way. Can any of you confirm it working on 3.5 and a remote stream?