Xserve 2006 and Lion -- any issues

Question

We just became aware that our old suite of 2006 Xserves cannot do Mountain Lion -- a bit of a surprise. We got these 4 years ago so then the deal we got seemed good.  So my quesiton which I cannot find a clear answer to is this:  Are there issues with Lion on these old Xserves we are missing.  I get this gut feeling from having run Lion on 4 of these for better part of year and now finding them failing  and having to reinstall -- corruption issues--- that as a transition from Snow Leopard to Moutain Lion that some issues may be the almost transition status of Lion that leads to Mt Lion.
Cany anyone provide information if we are going to have these  problems again?  Is trying to run more than Snow Leopard Server on the 2006 Xserves going to continue to have issues?  We had hoped to go to Moutain Lion which clearly is more robust and not with issues that Lion Server brought, but that is not going to work.  Our racks do not have room, nor do we have funds to buy some new Mac Pro Servers. And even the expense of 4 new mini servers and the need to get a HD rack to work with them rather than bays of  Xserves which we use as file servers is more than we had planned for in this years budget.
The ultimate question in having file servers for a mostly now Mac with a few specialized Windows 7 hard ware  (and ipads and iphones) end up being better on Snow Leopard?  One issue is that some of file servers have people running a few items on them, may be hard to also go back to Snow Leopard, but then we have tried to push these as archival file servers and do your work locally but the old habits of working on files on the servers still is hard to kill in  people who say well we have never done it that way.. argggg.
Any feedback on what we are trying to do would be very much appreciated before we go too much further down rabbit trail of keeping Lion going on these servers. 3 of the 4 have issues now, the ones that people do alot of file access on  -- maybe a problem with Lion and file servicess??? 
Thanks in advance,
Russ Jacobson

Answer 1

Oh some specifics on these servers;
Xserve
Late 2006
Processor  2 x 2 GHz Dual-Core Intel Xeon
Memory  8 GB 667 MHz DDR2 FB-DIMM
Graphics  ATI Radeon X1300 64 MB
Software  Mac OS X Server Lion 10.7.5 (11G63
Model Name:          Xserve
  Model Identifier:          Xserve1,1
  Processor Name:          Dual-Core Intel Xeon
  Processor Speed:          2 GHz
  Number of Processors:          2
  Total Number of Cores:          4
  L2 Cache (per Processor):          4 MB
  Memory:          8 GB
  Bus Speed:          1.33 GHz
  Boot ROM Version:          XS11.0080.B01
  SMC Version (system):          1.11f5
  LOM Revision:          1.2.8