I agree with others that your connection is most important, not the server hardware itself. That said, for our university (using 10mbs LAN) we just built a server from parts and found we could do it very cheap (under USD$1000) and very fast. Here is what we used. Keep in mind there are only **TWO** important components for a server--memory and processor. We spendt 70% of our money on that.
- Intel 3.2ghz Pentium $300
- 2 GB RAM memory $400
- DVD-RW (for daily backups) $60
- 80 GB hard disk $60
- Fast Motherboard (sorry forgot spec here) $120
- Case and miscellaneous stuff $80
Adding a used moniter, keyboard and mouse, we are very happy with this setup for the past two months. We can handle 1000 users in the school or over 200 users online simultaneously. Note also, we used LInux but no PHP accelerator, which will improve performance significantly.