Hello, welcome to the Linux world!
Good Linux distributions for servers are SuSE (www.suse.com), Slackware (www.slackware.com), Debian (www.debian.org), RedHat (www.redhat.com). There are also very nice BSD operating systems like FreeBSD (www.freebsd.org), OpenBSD (www.openbsd.org), NetBSD (www.netbsd.org) and DragonFlyBSD (www.dragonflybsd.org).
If you have little experience with UNIX consider hiring a professional system administrator or buying/downloading some related books. SuSE and Mandrake (www.mandrakesoft.com) are exceptional for people with little experience on Linux. FreeBSD is more widespread than the other BSDs, just like RedHat is the most widespread Linux for servers. Debian and Slackware are used by people with technical expertise on Linux, while OpenBSD is typically used by people who have increased security needs.
A businessman who bought some hardware from me on the local auctions told me that he was running his entire business on Slackware Linux.
For your software needs use http://savannah.gnu.org/
' ">http://savannah.gnu.org/ and http://www.sf.net/
If during your server setup you need immediate direct help, you can use IRC chat. All major IRC networks (Undernet, EFnet, freenode) have channels like #linux , #slackware , #suse , #bsd etc where you can chat with people who might have more expertise.
If you find OpenOffice to be a bit heavy for your terminal server, you can use KOffice from KDE (www.kde.org). Koffice is more lightweight.
I dont think you reaklly need dual CPU. The only upgrade you must do is to utilise 100Mbit or 1Gbit Ethernet LAN. 10Mbit is too slow. Dont forget a terminal server needs a fast network to transfer the information to the thin clients.
The server would need more RAM than usual.
Depending on how many users you have and what kind of work they do, you have to decide what CPU the server needs. If you already own an AMD Athlon CPU it should suffice for 3-5 users with office work, or maybe more if they dont complain much about speed.
' ">http://www.nerdypc.org/ - My Blog
' ">http://nsk.wikinerds.org/blog - My PCs