The beige G3s need to be installed on the first 8GB of any drive. There requires a firmware update for any SCSI cards you may have OEM ones. The video isnt the fastest, but for a server it should run great. Add all the RAM you can get into it.
The 500 mHz should run like a champ. I've run it on a 7300 with a 400mHz and it ran fine as a server. Heavy use may make it better to run Linux on it (because you get a little more speed in execution by not having overhead of the mach services and the gui).
For OSX Server you should get good performance though.
Good luck, and post any trouble you may have. I've installed OSX (standard) onto a beige G3.