I bought an ML115 G5 back in December. It's a quad core, rather than dual core, and I'm on an Opteron, rather than a Xeon, but other than that, they are the same.
You can fit a GTX 260 into the machine (I was checking my card in it), but the PSU is only ~360W, and has no 6 pin power, so you'll need a new one. The board supports up to 8GB of memory, but the key thing here is that it is ECC, not normal DDR2, which can make it much more expensive to buy. The big performance factor is that the fastest ECC DDR2 you get is 800MHz, as opposed to 1066, a significant drop.
However, the processor is a Xeon. If you look at the supported OS list, XP/Vista are not included. I've installed XP onto mine (check GFX card again, it was faulty), and it installed fine, as did the graphics card drivers. However, Xeons are not designed for gaming. There's some debate online about how much the negative effect is, but you're better off with the consumer Intel processors for games. Take a look at the
benchmarks in the link below, the impact isn't huge, and given the price, this doesn't look like bad buy, but remember your Xeon will be lower spec than that one.
Cost wise, you're looking at £230 for the server, £46 will get you 4GB of memory from
Crucial, you're 260 will be about £130 (get a decent brand, XFX, BFG and EVGA are good). A decent PSU, CoolerMaster 700W Modular is on
Ebuyer for £85.
This totals to about £490 (inc), you might be able to get lower shopping around, but you've also got delivery on this. Bear in mind that I built up my own system from scratch, which has a 320GB HDD, Quad core at 2.4, Lian-Li case, Overclocked 260, 4GB; for £591. Considering the possible issues you might have with support for the chipset/processor, it might not be worth it.
A few other things to consider about the HP.
It's not designed to have a huge card like the 260 in it, so you might run into cooling issues. The back of my card was about 3mm from the CPU heatsink, which isn't ideal.
The onboard RAID chip won't work on anything other than Windows (software RAID pretending to be hardware :<)
The fans are _very_ noisy for the first 30 seconds on booting, then drop down to nice an quiet.
It's a small case, might be a bit cramped to work in.
Overall, I'd say it's a pretty good system, given the price you'll be paying, but it could lead to problems down the road.You might want to google around to see if anyone else has done this, and if they ran into any specific issues. If all else fails, swap our the card and PSU to another machine, and run this as an ESXi server for testing (but remember the RAID won't work, you'll have to do single disks as datastores).