I've used Server 2K8 instead of Vista. There's a guide for it
. It's quite common.
The basic theory is that the even though both Win7 and Server 2K8 are all NT 6.1 (or whatever) the exact build that 2K8 is (let's say it is 5821 instead of 5772 for Win7) is a superior product. It will be more stable, and more effort has been put into making it 'right', because it's the server OS. My experience has not proved that to be true.
The process is not as easy (though almost) as I made it sound, either.
I have no idea if WMC can be moved over. I would not be at all surprised if it couldn't without some serious hacking that would be way over our heads.
The main problem I've noticed is that there is no GPU hardware acceleration of HD content.
This means that if you don't have at least one powerful core (>Opteron 2.4ghz) you will stutter with some 1080p content.
Also, some applications, especially games, refuse to install or don't work with server, for whatever reason. This can be as simple as installing with compatibility for another OS (just a context menu option when r-clicking installer), or involve some more complicated work around, or not currently possible.
For instance, I loved the PowerToys Calculator for XP. I couldn't get it working in either Vista or Server2K8. I didn't try too hard, but I suspect some software is hard coded to not work with Server, and it would be very difficult for someone to bypass that.
There is a forum for using Server 2K8 as a workstation
. A cursory glance reveals that many tout the befits based on the lack of 'MCE extensions' in server. I wasn't able to confirm or deny if anyone had got it working from a few brief searches. Like I said before, I would not be surprised if it would be practically impossible for us, and would require someone with a deep familiarity with the inner workings of the OS, and maybe even a dll hack/patch or something to make it work.