What about running DNS on the server - just let it run off the DSL modem/router"
I run DNS/DHCP off the servers, miniscule server resources are used. If it on a hardware router and the router dies then you have issues, not sure of your router capabilities, but I always use "forwarders" on the server for added security.
Other server uses...
In a workgroup, you could set it up as a Terminal server Gateway/Terminal server for secure access, and as a file server. Terminal service uses a good bit of resources, as does a database, so you would need sufficient ram/cpu. On a Domain controller, I would not attempt to use it for remote access due to security issues. I have a few clients with TSG, they love it, great for me, save me countless trips, especially when the client is >20 miles away. This server is a low end unit but it still run programs faster (via RDP) then wks will run them locally.
Centralized Anti Virus. I love/hate Symantec Corp edition, centalized management/deployment. I have not had a virus become resident in years.
Centalized backup. The research client mentioned is not using a file server, only a bare basic server for TSG, everything is on work stations, backup is a nightmare. The onwer has been fighting a file server for years, they just lost some critical data lately so I hoping they see the light.
As to disenting ideas. Even though I prefer workgroup setups for small networks,that is due to money. AD has better security, the ability for centralized policy and software distribution among many other features. The issue is the intial setup and maintenance costs, no less for safety, a second DC should be online..it is a point of money. Many of my smaller client just do not have it.
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Chernobyl disaster..a must see pictorial