Could Apple limit server class components to the xserve only and downgrade the MP?
No.
The Mac Pro isn't really "server class" - it simply uses the version of the Core processor that's designed for dual-socket motherboards.
Dual socket systems are usually found in low end servers and workstations. Desktops are single socket. With the quad-CPU chips that we now have, that means that downgrading the Mac Pro to desktop parts would limit it to 4 CPUs.
Of course, CPUs and motherboards for dual-socket systems are quite a bit more expensive than single-socket ("desktop") parts.
Which is why there's a big hole in the Apple lineup for a single socket mini-tower that uses desktop parts!