Can servers be used like regular PC's?

Short answer:

Sure, why not?

Long answer:

There are in fact quite a number of people running the PowerEdge 400SC boxes as workstations, they are very aggressively priced for those that don't need an included OS.  The real difference is that most server boxes don't have AGP slots for higher-end video cards, the 400SC is the exception because has an "unsupported" 4x/8x AGP slot that lots of people have had success with, while others have struggled getting the right card to boot up.  The 400SC comes with an older generation PCI ATI-RageXL 8MB card which is really slow by todays standards; not really important for running a server but terrible for 3D gaming.

Some other "gotchas" you might find about using a server platform for your workstation:

• Servers have a propensity to use the newer 3.3V 64-bit/66MHz PCI/PCI-X slots, these are great for fast NIC cards or RAID adapters, but finding -- say -- a 3.3V 64-bit PCI sound card to run in the PowerEdge 600SC has been a real challenge for some here in these forums.  There are no PCI-X video cards right now, there may never be.
• Dual processor server boxes use server-type Xeon processors instead of P4s, the Xeon can be much more powerful from the dual processors and huge on-board cache but tend to lag behind the P4 in processor bus and memory speeds.  (The current crop of Xeons are 533MHz FSB while the latest P4s are 800MHz FSB.)
• Higher end servers are exclusively SCSI and over-fanned, so they tend to be as noisy as they are fast.  Who cares how loud your server room is?  OTOH the PC sitting under your desk in your den is another story.
• The version of XP that came on your older PC is likely an OEM version, in that case it probably is licensed to be run only for the PC you bought it with (you did wonder how come it was so cheap preinstalled, right?).  It may not be legal to reinstall on another PC.  Take some time and read those EULAs!  Its no accident that Microsoft has the PC vendors physically attach those license stickers to the side of the case!  Of course, Linux users are generally not affected by all this. 

This may be heresy to say this here in the PowerEdge forums, but if you really want a high-end workstation why not just get one?  The Precision 360 is based on the same P4 800MHz FSB mobo design as the PowerEdge 400SC.  The Precision 450 is supports up to two hyperthreaded Xeon processors at 533MHz FSB and XP Pro supports up to two processors.  Both have mobos built on fantastic platforms and support normal workstation/desktop peripherals.  And, if you really don't need an OS, Dell sells the 360n and 450n versions without Windows/Linux/etc. installed.