Do I need Windows Server 2003 necessarily to create a domain?

No, you can use Windows 2000 Server or Windows NT Server. It also depends on what sort of domain you mean as you can register a domain name and park it at a hosting provider without having a server.

Scleros has provided the question you need to ask yourself: What type of domain are you wanting to create? A domain created by Windows Server is primarily a centralized security domain. There are other services that are also available with Windows Server that can best be performed with a centralized security.

The major difference between Workgroups and Domains is the way user security is facilitated. In a Workgroup, each computer holds security to itself and in a Domain, the security to all computers and servers is centralized.