Directory Services and Windows Question

If this question has been asked before or if it seems really simple I am sorry. I have a client that has a small windows work group of XP machines. They want to move to a client server infrastructure but are not interested in the headaches involved in Windows licenses and have asked me about OS X Server on a Mac Mini. My question is if I create the users in the Mac server directory services can they use those usernames and passwords to log into their machines essentially making the Mac Mini run as a "Domain Controller" role or would those usernames and password only be used to authenticate to resources hosted on the Mini?

T