If I understand your post correctly you are running a peer to peer network set up. Is your "server" running Windows 2000 professional or Windows 2000 server edition? I want to make sure that your reference to the Windows 2000 on the server and desktop being the same is correct. It is easy to confuse this issue. That is one reason the server OS in windows is named differently now.
Cost effective is a relative issue. Upgrading to XP from 2000 will be easy or difficult (usually easy). The problem you have is that you may need to upgrade hardware which adds to the cost. Also you mentioned that you can off load you PM software files onto an external drive to make room on the server. This lead me to think that your "server" is under powered and a small hard drive. What happens is that you keep having to add and upgrade pieces here and there then you end up spending more than the computer is worth. Remember that your time is probably more valuable that money. You can easily get bogged down with a lot of extra time trying to upgrade your equipment.
Does you server meet the hardware requirements for AC?
