Server options for late 2006 macbook I have an old late 2006 black MacBook. It has 2GB memory, and a 2GHz core 2 duo processor. I'm interested in using it on our home wifi network as a location for time machine backups (onto hard drives attached via USB) and a shared iTunes library (which an apple TV can access). The OS is currently Snow Leopard.

Should I install a server version of OS X (I think I need this if it's to be recognised as a time machine destination)? For a Mac running Mountain Lion, this only costs £13.99 from the App Store (in the UK). The MacBook cannot be upgraded beyond Lion. What are my options?
You are correct Mountain Lion will probably not run on it.  Also you need server software for it to be recognized as a time machine location.   Not sure if that was available in previous versions though.  OSX server is powerful,  but for simple use it is probably an overkill.  I have spent to many hours tinkering with mine while just using it for the uses that you state.

If you can get hold of an older version of OSX server and you are willing to tinker.. you could do all of that though