There are at least 7 generations of this machine with the same model number that show up in google. No clue what parts are in your server.
Most likely win7 will install on this and run. XP is much less likely to run, missing drivers for hardware that hadn't been built when xp shipped. Win7 costs $100 OEM, less for student.
Suggest you download the WIN8 open beta and see what it complains about. If clean, try installing win7. http://windows.microsoft.com/en-US/windows-8/consumer-preview
Dump your current disk image to an external USB drive using backup software that takes a disk image.
A decent win7 PC is $300. Depending on model of Proliant ML110 you could have an OK machine or a very strong one.