Additional info:
I followed KBase art HT4771, and made the following changes:
1. Stopped the Software Update Service and quit Server Admin app
2. Updated /etc/swupd/swupd.plist to begin hosting OS X Lion software updates by typing the following Terminal command:
sudo /usr/libexec/PlistBuddy -c 'add :otherCatalogs:2 string index-lion-snowleopard-leopard.merged-1.sucatalog' /etc/swupd/swupd.plist
3. Updated /etc/swupd/swupd.conf to allow OS X Lion computers to receive updates as follows:
"RewriteCond %{HTTP_USER_AGENT} Darwin/11
RewriteRule ^/index\.sucatalog$ /index-leopard-snowleopard.merged-1.sucatalog"
became
"RewriteCond %{HTTP_USER_AGENT} Darwin/11
RewriteRule ^/index\.sucatalog$ /index-lion-snowleopard-leopard.merged-1.sucatalog"
After completing this and restarted the Software Update Service, the Server's Software Update Service could find all updates, including Mac OS X 10.7.1 and more Lion updates (Multi-lingual voices, Server Essentials, ... ).
The issue is now that the client computers cannot find the Software Update server, though it is properly connected, regardless the selected catalog in /Library/Preferences/com.apple.SoftwareUpdate.
I am now considering to erase all updates from server, delete all config files, and restart service from scratch.
Any other idea before I start the big deletion ?