First lets talk about the hardware. A server is nothing more than a powerful computer. You can usually get away with standard desktop hardware with a couple of small upgrades. First you'll want to get a RAID card and a second hard drive. This way you can mirror the two hard drives (the second hard drive should be the same size as the drive that came with the machine, or by two new drives of the same size). You want to mirror the drives so that if one drive fails (drives have moving parts and they will eventually fail) you still have all your data on the server).
If you want something a little more impressive than a standard desktop <a href="http://www.dell.com">Dell</a>, <a href="http://www.hp.com">HP</a>, and <a href="http://www.ibm.com">IBM</a> are the big name server vendors that are out there. Personally I prefer the HP servers, but that's just me. You can look at all the various options on there respective web sites.
As for the software you have a couple of choices. You can use Microsoft Windows, or Linux. Odds are the people in the company are using Windows and they want to continue to use Windows. So you'll need Windows Server for the operating system which runs on the server. Microsoft makes a bundle of software called Windows 2003 Small Business Server which comes with SQL Server, Exchange, ISA, and a few other pieces which you can choose to install or not depending on what you need.
Microsoft Windows can cost quite a bit of money, while Linux is free. However Windows will give you a user interface that you are familiar with, while Linux won't. If you choose to go with Linux there will be a steep learning curve to get the operation system setup, much less get everything in the office talking to the server.
Assuming that you choose Windows Server (or small business server) you'll need to setup the server as a domain controller. After Windows is installed you'll need to install the DNS service on the server. After that is done you need to setup Active Directory by running dcpromo from the run window. That wizard will run you through the process of setting of active directory. Once that is done you can begin setting up all the workstation at the office to connect to the server. After everyone gets there new accounts setup you'll need to move thier profile information from there old local profile to the new domain profile.
You can also setup stuff like roaming profiles so that all there profile information is stored on the server so that if there workstation fails they don't loose any data. It also makes it much easier to backup thier information this way.
Setting up Active Directory and a server may seam like a big task and it is. However there is lots of information out there on how to do it properly. You may however want to contact a local computer contractor to assist you (or run through the process for you). This way someone that knows the process and the product can get it all setup, and give you instruction on how to manage and maintain the system after it's setup. It's usually money well spent if you don't have someone in house who knows Active Directory.