This is arguably a question for the server forum, but here goes...
The warning you saw has to do with the configuration of IIS under XP Pro. The only component affected is the VMware Server Management Interface, a web-based GUI whch allows you to control aspects of the server from a web browser.
The difference in the products is less about the host OS as about the intended usage.
Server is primarily intended to host headless vms- think of it as a rack full of individual boxes. Server does offer a console which provides basic functionality to interact with aVM, create new VMs, manage snapshots, etc.
Workstation is more of a virtualization developer tool. All the management capability of the server console, plus greater interactivity, plus developer-specific functions such as cloning and teaming of VMs.
Player is designed to let end-users interactively run a pre-created VM (think of Adobe Acrobat Reader as opposed to the full Acrobat product). Player does not come with the ability to create VMs, though many people use it with third-party tools as a "free" Workstation.
Fusion, the Mac-only product, seems to define a new niche- Desktop virtualization product. It exists in a strange space between Workstation and Player, but offering features such as Unity that provide a seemless desktop experience.
As for what to run... of the free products, Server has the advantage of integrated VM management tools, but Player 2.0 is based off of Workstation 6.0 and so offers USB 2.0 support and experimental 3-D support (not available in Server).
