It certainly would. Good video encoders are multithreaded and will scale nicely with the number of cores, so 8 slower cores generally will beat 4 faster ones. It would take a 3.0 GHz or so Core 2 Quad to beat a pair of the slowest Xeon E5310s, which run at 1.6 GHz. The Xeons would also be a lot easier to cool than a single Core 2 Quad. However, the Xeon quads will generally perform worse in gaming than a Core 2 desktop chip due to slower clock speeds (unless you spend a lot more on the Xeon setup than the C2Q one) and high-latency FB-DIMM memory. They should be acceptable, especially if you have a decent GPU.
Here's what I'd suggest:
CPUs: 2 Xeon E5310 1.60 GHz 1066 MHz FSB
Motherboard: A Tyan or Supermicro dual 771 board of your choice with a PCIe x16 slot
RAM: 4 1GB sticks DDR2-667 FB-DIMM
GPU: Pick one to suit your budget and intended use. I'd suggest an NVIDIA 7600GT for a less-expensive setup, an ATi x1950 Pro for a more powerful one, and an NVIDIA 8800GTS if you want a lot of gaming power. If it were me, I'd get the x1950 Pro as it's not much more expensive than the 7600GT and will be much more powerful, yet cost a ton less than a NVIDIA 8800 card.
HDDs: I'd set it up in the following way: two 10,000 RPM WD Raptors in RAID 0 as a scratch/temp drive and 3 good 7200-rpm SATA drives of an appropriate capacity in RAID 5 for your data storage and OS. Then get two identical good 8-port PCIe SATA RAID controllers such as the 3ware or Areca units.
PSU: You will need an EPS12V PSU of about 600-700W, depending on your GPU. I'd spend the little bit extra and get an 80-85% efficient one as they run cooler and suck less juice from the wall.
Case: Get a well-ventilated ATX/EATX server case. This will be huge but everything will fit nicely and it will be much easier to work in than using a standard ATX case, even if your motherboard is ATX and not EATX. If you have an EATX motherboard, then you have to use a big server case.
That should get you started. Note that with 4GB RAM you'll want to use a 64-bit OS to harness it all. If you use a 32-bit OS, then you'll only see about 3.3 GB of that memory. Plus, a 64-bit OS yields faster encoding times by up to about 10%.