I have used eSmith for several servers, including one that does webhosting (because they also use it for other uses).
The OS can handle it, but it might not be exactly what you need if you are hosting lots of different web sites. yes, the customized webmin interface is nice, but you are also running services that you don't necessarily need.
Do you really want samba and appletalk support running? How about virtual hosting? If you add hosts from the control panel (instead of modifying the templates by hand) you also setup your server to have all of your email accounts be set for those domains as well.
If you are looking at a dedicated web server, use a custom Slackware install.
Also, you might want to rework your hardware specs. Replace that single 40 gig Hard drive with a 3ware IDE raid card with multiple drives in a RAID config. For mostly simple websites (static and a little PHP) you won't notice much of a difference, but for high volume sites that use MySQL or Postgres it will matter.