Server 2003 question on domain controller

[kevlach]

I started working at a shop 10 years ago when we had 1 pc and 3 employees. Since then we've added about 10 more pc's and a poweredge server from dell with server 2003 installed. I am not real familiar with network administrating and as we added computers they were all tied together as peer to peer networking through a common workgroup. Now that we have more employees using the system I would like to change the server to add roles such as domain controller and turn on active directory (which I had no idea what it was when I first started using the server). Right now the employees just log on to there local pc's which have either XP or XP pro and can connect to shared files on the server or on another pc with shared folders. If I change the server to be a domain controller and turn on active directory will the other pcs still be able to log onto the server with the settings that are currently on them or will they be unable to log on until I can change the local settings? I would like to control the user profiles and make adjustments all through the server. Right now I have users set up at each computer. What is the best way to change things over with minimal down time for everybody?

There is also one pc that has windows 98 that is used just to download nc files for a production machine.

Thanks,
Kevin