According to the official requirements for Core Image any Radeon revision less than the 9550-9600 is a no go. The 9250 is a revised/die-shrunk 8500 so it ain't gonna help you.
(I'm guessing the card you have in your Xserve now is the lightweight Radeon 7000-based model that Apple stuck in the machines as the cheapest option? For the record 2D acceleration and straight-up OpenGL *does* work even on those. If your one nagging goal was to play GLQuake on your Xserve the 9250 would be a decent step-up: I have an R7000 out of an Xserve G5 in my B&W G4 and for OpenGL it's barely half again faster than the stock Rage 128. But that doesn't help you with the OS X interface candy, of course.)
To be honest I have to sort of question why you settled on an Xserve G5 as the ideal machine to use as a X-terminal, since even the weakest Intel Core Duo-class machine will provide better performance with less drama. It's not hard to lay your hands on an old Dell or whitebox with a Core Duo 2 for less than $100, after all. But, eh. OS X makes everything, er, better? (Even when it's an old version on iffy hardware with dwindling-to-nothing software support, right?)