Question 1: I've ran a similar setup, KT400 Mobo, xp 2800 cpu, gig of ram..., first question i would have is which core is the xp2800, hopfully it is the barton core so it has the extended cache size. With a server, you typically will want to run more then 1 gig of ram, but if you limit your processes running on it you should be able to ensure that it works for you. With this setup, you can expect to have an average uptime of approximently 1 month give or take, the key to maintaining a long uptime is your cooling solution, expecially with the hotter barton core cpu. For awhile, with this setup, i was having overheating issues, to solve this once and for all, i installed a liquid cooling soultion. While my experiance with the KT400 mobo was not mindboggling, i cannot complain, it did what i asked it to. The cooling kit eliminates the potiential of cpu fans getting clogged with dust and malfunctioning, i picked my package up for approximently 100 from Minco.
The Wife: What you can explain to your wife is that this server can be used for many buisness related things,
:Multiple Webpage Server
:File/Backup Server
:Mail Exchange Server
Question 2: Yes, you can host them yourselves as long as your ISP allows you to. Typically this will involve setting up a buisness internet account with your ISP which will run you a little more each month, but the reason being is the extra bandwidth that you are getting for upload speeds. You can save money by using free dns services such as dyndns.com.
Question 3: Having a central point of data storage is always a good idea, it allows you to backup critical files easlier in the case of a crash. For more ideas on what a server can do for you, goto microsoft and search for Microsoft Server and check out all the options the OS offers.