I ran a dual processor server in a smaller office environment of 6 PCs and 4 printers, and used the server machine as my development machine. We had Microsoft office on all machines (using mostly Word and Excell), plus a homegrown system that ran the particular business requirements using MS SQL Server 2000. The OS on the server was Windows Server 2000.
Whenever we had performance problems, simple tuning of the homegrown application solved them. I was running Visual Studio 6 and SQL Server 2000 Development Edition for my development environment on the server machine, and boy, was it fast!
We were running 10/100 MB Ethernet, and NEVER had any network perfomance issues (except trying to keep it running sometimes, but that was due to configuration issues).
CPU usage on the Server only approached 100% (no idle cycles) when I was compiling programs, and that was on the CPU the machine assigned the compilation to. And the network itself was in use less than 5% of the time.
So, your solution will probably work with only minor performance issues, if any at all. If your application are just MS Word and Excel, most of the work keeping up with keystrokes and associated processing will happen on the individual PCs, and will not involve the network or server. (Or do you plan to keep all documents on the server and have the PCs access them directly on the server? That might make a difference.)
So, I think you could