It won't work. You have to have the $499 Snow Leopard Server product already installed to get the $49 dollar upgrade to Lion Server. It says this on the Apple site. The original Lion info from Apple suggested Lion and Lion Server were the same product so I can understand your comment.
That is weird, I hadn't seen that pointed out before. What is it going to cost for people buying brand new macs after 10.7 ships? Or who upgrade to 10.7 then want to upgrade to Lion? The website only mentions upgrades from 10.6 server, which is a pretty limited number of cases.
Because almost all personal computers are grossly overpowered for the vast majority of users who surf the web, exchange e-mail, and edit documents. So there is no reason to make a bigger, louder, Mac Mini that consumes much more power (due to its use of desktop components).
There sure as hell is a reason to go that route - it would allow a much CHEAPER machine with that performance. Even if the CPU is overpowered for many users, these days even the lowest end users likely need a fair amount of hard drive space for music, photos, and video. A laptop hard drive is a terrible way to go for a desktop machine. And basic users are getting into things like video editing and Garage Band which are extremely consumer friendly but still CPU hogs. Even things like rerendering audio (and in the future possibly video) for mobile devices can benefit from more power.
And I'm very skeptical that the small size of the mini outweighs the disadvantages. I'd bet if they went slightly bigger to use desktop components and either bumped specs or lowered prices (or hopefully some of each), it would provide a nice boost to sales. But the main reason they won't do it is because it would probably make the mini too appealing and eat into iMac sales.
The price of the Mac Mini has little to do with the cost to manufacture the Mac Mini.
Flat out wrong. Just compare the prices of the components, particularly CPU, memory, and hard drives. The parts used in the mini are more expensive than their desktop counterparts, period.