Before we decided to go with a XServe, we also considerd a Mac Mini as cost-effective alternative. However these things spoke against:
1. Downtimes in the case of needing to replace harddisks, since they are not directly accessible and not hot-swappable.
2. Hard to impossible to get a RAID1 mirror running (we required it for higher redundancy). In order to realize a RAID array you would need to connect a SAN storage product (we had a closer look to a Maxtor two-drive system) via firewire cable.
3. Although the Mac Mini surely is capable of, it originally was not intended to run 24/7/365 as a XServe does. There is also no way to do remote monitoring of the hardware.
But as other stated, as a file server or mail server it is a good choice and may work. If you decide to run something critical for your business, I would not recommend it. However this is my personal opinion only.
By the way: When you add the costs of a separate monitor, mouse and keyboard to the Mac Mini's price, why not save some cables and power adapters and get a MacBook for this purpose ?
Considering this, it even comes with a built-in UPS (battery compensates a downtime of several hours - which UPS is able to do this 🙂