- What is the biggest issue I am going to be running into?
What issues will you run into if you upgrade your clients to Lion, but leave your server on Snow Leopard? none. That's entirely valid.
- Will AFP still work with 10.7 clients?
- Should I upgrade the server to 10.7 also?
Not unless you specifically need some of the features in Mac OS X Lion Server, and absolutely not if you only have one server.
- What will I loose at this point upgrading everything?
Probably several nights' sleep. Upgrading a server, and maintaining all the services without any downtime is a significant process. Snow Leopard Server doesn't stop running just because Lion is available, and it won't stop when Mountain Lion comes along, either.
If your mandate is to upgrade the clients, then do that, and take your time planning your server upgrade/migration.