depends how old the Xeons are! but if less than 5 years it sounds like over kill. Most people can easily get away with 1GB. You need to look to your video chipset for compatibility more than anything else (closely followed by sound and NIC chipsets) No, Xbox is no good for this.
Are you sure about 1GB being enough? Maybe something is wrong with my system, but my physical memory usage usually hovers around 3Gb. This is on a dual core 3.4ghz machine.
edit* Nevermind, I was just chatting on IRC and was told that the computer will basically make use of whatever you give to it, so this is normal, and having less would be ok. I checked and only 20% of the mem was going to applications, 74% was being used for disk caching