Upgrading Xserve hard drives Will 3Tb SATA hard drives work in Xserve (Model Xserve1,1) and allow all the space to be allocated.
This may be third-hand information, from this page of specs, but:


  Apple reports that this Xserve supports "any combination of SATA or SAS Apple Drive Modules: up to 2.25 TB using three 750 GB 7200 RPM SATA drive modules; or up to 900 GB using three 300 GB 15,000 RPM SAS drive modules."