If you do the DVD install, it will wipe out everything, pictures and all on the isntallation drive.
If you do the cd install on top if Kubuntu 7.10, you will probably run into issues if it is not a clean installation and has already received updates. Since you mentioned you have the server version of gutsy, I am not sure what other problems you might run into.
Your best bet would probably to get another machine to test it out and get a feel for it, then when your ready, backup everything off of your cirrent server and install LMCE. You can then migrate your data to it once finished.