Thin client question - (I think?)

[Patton Echols]

I have a question  that is not strictly Ubuntu.   But this group has 
been helpful and hopefully can point in the right direction.

Here is the situation:

Office is currently running a windows network ( Windows 2003 SBS Server 
and XP desktops).  XP boxes are old and subject to failure and there is 
a desire to update.  I had suggested an alternative and am now being 
asked questions I can't answer. 

My suggestion was to have one fairly robust XP box, replace all the 
other desktops with lightweight linux diskless "thin clients."   (Is 
that the correct term?)  I envision something like a DSL box 
http://tinyurl.com/b6l35 that uses something like terminal server client 
to remote to the XP box where everyone logs in.  Windoze would then do 
the authentication of each user to it's server and (license issues 
aside) 1/2 dozen or so users can all work simultaneously. 

So Questions:

1. Do I have that about right?  Or am I missing some major piece of the 
puzzle.
    1.a. Would this be a Ubuntu thing for the clients?  Or something else.
2. Is there a dummy friendly guide that anyone knows of that will fill 
in the gaps of my limited knowledge?
3. What about users accessing thumb drives and cd/dvd drives locally?  
And if not, how is that handled?

Note: This is a production office and is very unlikely want to shift 
gears to the Linux world.*  Also, even w/ the costs of incremental 
change out of desktops, probably will not hire an expert to do a thin 
client install unless some amateur (that's me) can demonstrate proof of 
concept with the existing installation.

Thanks for all thoughts,

Patton