Xserve storage - replace Mac with X-serve?

Currently using a G3 (I know! Iknow!) as a fileserver. This had an external Firewire 120gig Drive attached for graphics dept and La Cie tape drive for backup. Digital photography has meant increasing storage - currently at 750 gig and rising.
Tape drive has just failed - need to consider my options and priotities - your thoughts, please.
Mine are - replace tape drive first?
Replace G3 - we are about to free a G4, and this could be used as replacement fileserver- would end users note any improvement in service? marginal?
Or bite the bullet for an X-serve?
could we still hang our Harddrives off this in a firewire chain or if you go down X-serve route is that a bit short sighted - should you be looking at Apple drive modules instead of external storage?
Any other issues I should consider - price is a consideration so if there is a 'Gold Standard' I should be trying to achieve, is there an optimal upgrade path that would allow me to buy kit one stage at a time?
Thanks

Hi BrendanK-
There is nothing wrong with a G3 with drives hanging off as a file server as long as it is doing the job.
Tape can still be a viable backup media. The tapes are small and easy to lock in a safe. The backup process can be slow as you know. I have clients that still rely on tape for "deep storage".
The G4 may show marginal gains processor-wise, but depending on which one you have it may have gig-Ethernet which would speed transfers up significantly.
Even with an XServe the basic I think the basic configuration comes with an 80GB drive with the expectation that data will be stored elsewhere. You can add a couple of drive modules to increase storage but you will have all of your eggs in one basket.
Be aware that you can run the XServer software itself on a variety of platforms. A Mac pro loaded with hard drives may do the trick for you.
Gold Standard to me means a system that meets your needs and 3 backups of data-one locked in a safe at another location, one locked up locally, and one always nearby and ready to go. No matter what you use for a file server, it means nothing if you lose your data.
Hope this helps. You can do this on a tight budget.
Luck-
-DaddyPaycheck

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