You can bypass firmware passwords on older Apple hardware by altering the RAM configuration; ie: remove one of the RAM Modules. On reboot reset the Parameter RAM (PRAM) by holding down the cmd+alt+P+R keys simultaneously. I think you only need to do this once although I prefer to reset the PRAM three times. Shut down the XServe, re-install the RAM module you took out previously and reboot as normal. No more firmware password.
To completely 'reset' The XServe I would reformat and reinstall the Server Software. Prior to doing this it's advisable to understand exactly what role you want this server to perform. If you don't want a server you can simply install the client OS - would need the client installer media instead - as the hardware itselfcan be used as any other desktop mac.