I'll have to look in to the Apple Care status as this is a set up I inherited control of when I started about 6 months ago, I certainly hope they invested in it when they bought it back in '09 or early '10.
Definitely worth checking. Something worth noting though; I'm pretty sure that AppleCare for Xserve isn't the same as something like AppleCare on a MacBook Pro; I'm pretty sure you get much more deluxe treatment with things like replacement parts and a special Xserve hotline to call. I'm not positive on that, but it's something worth looking into.
Upgrading to a newer version of Server is a possibility, but one that I fear may not go down to well. We're a secondary school which is primarily Windows based, we just have one suite of about 12 Macs for our Media Studies classes etc. I take quite a strong interest in this suite because I'm both a Mac enthusiast and also a technician for the Media department in the afternoons, so I have quite a vested interest in seeing it run smoothly, but in the great scheme of things I can understand why the higher ups don't consider it too high a priority in budget terms.
There's also the issue that we're basically stuck on Leopard for our clients, as half of them are Minis which I'd need to upgrade from their measly 1GB of RAM to handle Lion. This isn't too big an issue in itself, but the rest of the machines are G5 Power Macs which limits us to Leopard unless I can convince them to do a serious upgrade on the whole suite, which again ties back in to my dilemma above. Frankly it's going to have to happen at some time as Leopard will only be sustainable for a little while longer, so perhaps this is as good a time as any to push the point, but frankly I'd rather not put all my eggs in the Lion basket when Mountain Lion comes out this summer and should (hopefully) address some of the woes people seem to have with Lion Server set ups.
I only recently attained my ACTC 10.6 (Apple Certified Technical Coordinator 10.6; a certification that basically says that I know the fundamentals about Snow Leopard Server) and even then, it was a bitch to study for and I passed by the skin of my teeth, so take what I'm about to say with a grain of salt: but I think it's entirely possible to have a Server running Snow Leopard Server and have said server still supporting Leopard clients, whether they are still rocking PowerPC chips or not. I know that Open Directory doesn't care. You might have issues when it comes to using the collaborative features like blogs and wikis, but for all other things, it shouldn't be a problem. I know that Netboot is an exception to that rule, so if you have 10.5 based images that you have on the network and you rely on that functionality, it's ill-advised that you go beyond 10.5, but for all other Server purposes, the fact that some of your clients are stuck at 10.5 by virtue of being PowerPC Macs shouldn't matter as far as moving the Server to 10.6 is concerned. That being said, I have no clue about Lion. After I study for, take and pass the Mac OS X Deployment 10.6 exam (for the corresponding Apple Certified Specialist - Deployment 10.6 certification) which I'm mainly doing for kicks at this point, I'll go and study for and prepare for the ACTC 10.7 exam. I started with studying up on 10.6 Server as I knew that 10.7 was drastically different, and I figured that knowing what things were/are like in the previous version would give me a a much better rounded education on Mac OS X Server as a whole. Still, that said, I'm very much a newbie.
As for making a budget request regarding a Lion or a Mountain Lion upgrade, waiting for Mountain Lion to come out is probably a solid plan (unless they make some stupid requirement of Mountain Lion requiring Lion for installation, in which case you'll be doing fresh installs) as you will likely have to acquire entirely new versions of your software (unless you already have Universal and/or Intel-only versions of the software you're using) which will drive up costs. Are your Mac minis Core 2 Duo-based? If they are Core Duo-based, you're capped at Snow Leopard on those. And unless your Mac minis are either current generation or equipped with an NVIDIA integrated graphics processor, they won't go to Mountain Lion as Apple has dropped support for the early Intel GMA integrated graphics processors. Also something to consider as you might be scrapping all of those machines in going to Mountain Lion.
I wish we had anything close to redundancy for this setup, in fact we only just got a UPS for the Xserve itself after I expressed concerns about having it unprotected with quite valuable data on it (editing projects which the kids really can't lose). As I said above, it's far from a priority for the school as a whole so even addressing problems as they come up is often a struggle, let alone heading them off in advance with things like redundancy and timely upgrades. We've got an Easter break coming up so that may well be the time to deal with the server being out of commission if needs be, though the main problem is that we're getting right in to exam and assessment period for Media so the Macs are in near constant use and may even be over the break as well, meaning this problem may have to take a back seat for a while. I'll give Apple a call once I know the status of our warranty/care package and see if they can help, and if not I'll look at reinstalling 10.5.8 as you suggested.
Look into the Xserve hotline. Even if you're out of warranty, I know for a fact that Apple has an entirely different division of "AppleCare" designed for the Enterprise. Despite the fact that my Mac mini (listed in my signature) is used as a normal client-version-of-the-OS-laden Mac, technically it's the server model from the Mid 2010 generation, so I frequently get transferred to the server hotline by people who think I'm using it as a Server. Either way, Apple did intend their server lines to be on-site serviceable, despite their server product lines being ill-marketed.
I was somewhat hoping I'd just been a fool and missed something obvious, but what you've said seems to make a lot of sense. Thanks for the input, very much appreciated, and if anyone else has run in to this same issue then I'd be interested to hear if there's a less extreme way of resolving it.
Nah, one of the great things about Macs is that the problems are all fairly logical. The bad news is that make them any less annoying. In the meantime, you're very welcome; I like to do what I can to help. I'd try reinstalling the 10.5.8 Server combo update; you will need to reboot the Xserve after installation, but that might level things out. Otherwise, best of luck on anything else. I also echo the "if anyone else has run into this same issue, then I'd be interested to hear if there's a less extreme way of handling it" sentiment as I feel as though I might also be missing something and would like further education.