I've not used one as a server but I have a g3 400mh machine that my secretary uses as a transcription (word processing) machine. I has a wireless card to talk to the network. It has been running without one freeze in 1.5 years. It's running panther with 640mb ram. I got it for $125. What an impressive old machine (8 years old.) I would imagine that it would work well as a server.
For file serving, keep in mind that the PMac G3 has only 10/100 Ethernet and doesn't support drives larger than 120GB on the built-in controller. I have a 400MHz G4 Sawtooth, which should be nearly identical in CPU performance to a 400Mhz G3 for file serving, and I added a Firmtek PCI SATA controller, a 320GB SATA drive, and an Intel GigE card. It can sustain 35MB/s to a Core 2 Duo iMac, and the CPU is maxed out at that point. I don't believe the G3 can be upgraded to dual processor, although there are fast single-processor upgrades available.
Other than all of that, it's a great machine for a server. It has 64-bit PCI slots and you can fit 6 HDs in it if you take out the optical & zip drives, and the power consumption is very low for a tower computer.
Up until recently I was using a 500Mhz G4 as a file server, along with a Sonnet Tempo PCI card (which will be FS soon!) to handle the 4 extra hard drives. You shouldn't have any problems, though as noted above, it won't have gigabit ethernet. If you're not sending files to a bunch of computers at once, or don't have a gigabit router, you might not notice it at all, though.