1. I guess they could. How many users do you have in mind, and how big is the HD? I would place quotas on the users at a reasonable number to let them store their stuff, but keep the ISO's out.
2. What os are you using? can you ping the server? have you tried to access it via "run \\serverip"? Does the server show up at all in explorer?
3. I am also sure PHP is available, and usable but I am not sure which version (you need to check). I would search and see if the program you want to use has been installed on SME before, and try it using the how-to if available. Then report it on the wiki page for contribs that work, or dont work.
bob