Q: Xserve2,1 graphics.

What you would need, is a card, that supports EFI.

Only these two cards will fit into Intel Xserves and work out of the box:

Apple Nvidia GT120 video card

(Apple OEM from Mac Pro 4,1 - this card only supports 64 Bit EFI, so it will work in Xserve 2,1 only)

Apple ATI/AMD Radeon 2600XT

(Apple OEM from Mac Pro 3,1 - this card supports 32 and 64 Bit EFI, so it will even work in Xserve 1,1)

Both cards are slim enough to fit into the standard PCIe slots and both cards do not require to get additional power with a cable directly from the power supply. (This is helpful, because such a cable is not available in Xserves.)

Both cards will use a standard PCIe slot - for the special slot of the X1300 there are no alternatives available. I any case you should remove the X1300, if you use a PCIe graphics card.

Without modifications this is the maximum.

I remember, that a few months ago I read a comment in some other forums from a user who used an external GPU with his Xserve.

http://forum.netkas.org/index.php?topic=5497.0

Of course, you would need to have an PCIe extension cable and you would need to provide additional power to the GPU from an additional ATX power supply.

You could also check out this topic regarding the Xserve 2008:

http://www.twistedmac.com/index.php/21-mac-hardware/34-bringing-life-to-an-old-2 008-xserve

I'm quite sure, that the GT120 would work with macOS Sierra, because a Mac Pro 2009 is compatible with Sierra and the GT120 was the standard GPU of the Mac Pro 2009, but I'm not sure, yet, if the Xserve itself would be compatible with Sierra.

In regard to OS X 10.8.x to 10.11.x the Xserve 2008 (2,1) is not really a problem, because the Mac Pro 2008 (3,1) was officially supported by these OS versions and the Xserve 2,1 - related to its internal components - is more or less a Mac Pro 3,1 in 19" form factor. The only problem of the Xserve 2,1 is its X1300 graphics card.

So you can run 10.8.x to 10.11.x on the Xserve 2,1, if you replace the GPU (as mentioned before) and patch or rename the /S/L/CoreServices/PlatformSupport.plist file.

The problem with Sierra is, that AFAIK in relation to Mac Pro the min. requirement is a Mac Pro 2009 (4,1). So what might happen here, is, that some drivers required for the internal hardware of the Xserve 2,1 are no longer part of Sierra and so you might run into trouble.

I did not test this, yet, but perhaps some other user here already tested this.