is it possible to create a VmWare Server VM on VMware
Yes. Be sure to select "Custom" when creating the VM and set it to be "Workstation 5 Compatible" which will work with Server.
Virtual machines created with WS 4.x, 5.x are compatible with VMware Server.
If you create a virtual machine with Workstation 6 and use the version 6 virtual hardware, you will need to use the "VM" -> Change Version" wizard to downgrade the hardware version to be compatible with VMware Server.