My Intel iMac's iTunes settings specify the library as existing on my G5 iMac, but its data file contains my playlists, iPhone settings, applications, etc. - as far as it's concerned, it's just a normal library; it doesn't care that the files themselves are not on its hard drive.
While I can sync my iPhone with both, I only sync with my new iMac, while my husband (who is still holding onto his Windows fetish) syncs his with my G5; we have no issues at all. (He was synching with my new iMac as well, before the server setup, and transitioning to the G5 was painless; no loss of files/data.)
To setup the server, I changed the library location on my Intel's iTunes to point to my G5, then clicked "Consolidate Library". This copied all files from my Intel to my G5 and kept it all organized (make sure to tell iTunes to do this). I then copied the XML file over to the G5 to preserve all playlists and entries. I use my Intel for downloading, encoding, adding to iTunes and tagging, which copies the file to my G5; I then tell my G5 to add the file to the library so that its XML file is updated (after which AppleTV sees it and streams it happily). Only slightly cumbersome, but not enough to complain about.
Note: iPhone applications are in their own folder outside the iTunes library folder. During the initial server setup, I manually copied these applications to my G5; however, iTunes will happily keep them updated as new versions are released, on both my G5 and my Intel.