Software Update Server - Client Settings?

Not automaticly. You need to use the workgroup manager to set preferences for users, groups and/or computers for software updates. For non managed clients you can follow the steps on page 75 of the system image and SW updates guide. You should be able to determine that the client is using the correct server because the fully quallified domain name will list at the top of the software updates pane when its not using apples server. Your server must have an IP address that resolves to a host name and the host name must also resolve to that ip for this to work, however this should be the case if your server is an open directory master anyways.