It would do what you are looking to do but it will be at the bottom end of the performance scale.
Also keep in mind the system comes with no warranty so unless it is DOA you stuck with the repairs.
The system comes with 2gb of memory. You're going to want to expand that. Apple supports 4gb on this model, user have reported using 6gb. See Other World Computing for memory.
The OS is Leopard, you will need to upgrade to Mountain Lion in order to run the latest version of Xcode. To get to ML you will first need to upgrade to Snow Leopard to get Mac App Store Access then you can install ML.
So figure in the coast of memory and the two OS upgrades when you look at the price.
regards
Message was edited by: Frank Caggiano - Instead of thinking of doing this for as cheap as possible think about what you have to spend and work from there. If you have $500 say a refubed Mac Mini might be a better option unless portability is a requirement.
Keep in mind if you want to do IOS development you will need to join the IOS developer program, that's $99 US a year in addition to your hardware/software costs.