If all you're using it for is a file server it really doesn't need much horsepower.
I use mine as a file and print server, also as a dedicated CD burner. For a long time I used a P2-300, then I went to an Athlon 700 which was more than adequate.
Last month I built a new server around an Athlon 2000. Major overkill, but I had a mobo and CPU to spare after upgrading my workstation and with the 700 I would have slow file sharing while also burning a CD and that's not a problem with the 2000.
I burn a LOT of stuff for clients and it's handy to have a decicated machine for burning. I often do large quantities of burns while playing Day of Defeat - not somethign you can easily do on the same system at one time.
My workstation is setup so that my Documents folder is on the server - that way I can do work from any computer in the house (kitchen, livingroom or the laptop). That also ensures that my data is not stuck on the workstation if the workstation crashes.
My MP3 collection is also on the server so I can play my music from any computer.
I use Windows 2000 Pro on the server. I do NOT recommend using a server OS unless you have more than 10 simultaneous users (unlikely at home) or just want to practice administering a server.
A server OS is overkill in most file sharing situations, and also adds a lot of complexity. For instance the standard versions of NAV and McAfee won't work on Server OSes (although AVG will).
A client just upgraded to a CD-RW for data backups and I gave her a $100 credit for a very nice DSS4 tape backup drive (new cost $350) and a SCSI Bus Controller for it. I was going to resell it, but I think instead I will install it in my server.
I backup my data manually to my laptop and a USB compact flash drive every day, but there's other files archived on the server that are not backed up regularly (reference material, clipart, fonts, backup files). Stuff I could afford to lose, but it would be a nuisance.
Anyway, my bare minimum recomanedations would be a 500 Mhz CPU, 256Mb ram (for Win2K or XP), any POS video card, since access speed is not an issue you can use a 5400 RPM drive if you have one lying around. Use Win2K Pro or WinXP Pro.
You don't need to leave a monitor, keyboard and mouse connected to it. You can use a free remote control program like TightVNC:
http://www.tightvnc.com/
Just configure BIOS not to give an error if the keyboard is not detected.
Also, is there a way to install Office xp and all my other apps and games and use them on the work stations?
No sure I follow you here. You can put your document files on the server, and then use them from any computer that has Office installed.
Are you asking if you can install a game or an app on the server and then run it from a workstation? You COULD map a drive letter to the server and do that, but it would be foolish and serve no useful purpose. Apps still have to be installed locally on each machine, and performance will be slower if an app is loading from a networked drive.
In general what you want to keep on the server is DATA. There's several ways of doing this. You can change the path of the Documents folder on your workstations so they point to a folder on the server, or you can just get in the habit of copying anything important to the server.
I do both. My documents folder is on the server. However there are other files (like web sites that I'm working on) that reside on my workstation, but whenever I make any changes I always copy it to a folder called "Backups" on the server, and rename it according to the date.
I do the same with my Quickbook backups - I back them up to the server although the main company file is on my workstation.
opinions i was looking for was, if it was better to use the server to connect to the internet or if it would be better to have my main rig do that.
Neither. I used to use my old P2-300 as an Internet router, but that was before hardware routers were so cheap. Nowadays you can get a hardware router for $40 or less, so it's a no brainer to just use a router and connect all your computers to it. This assumes you have broadband.
If you're on dialup then you have no choice - you need to use a computer to share the connection. If there's more than one computer then you might as well setup the server to share the dialup, but if it's just your workstation you might as well dialup locally.