Without a server, Windows XP can not operate and any level higher than a Workgroup.
Only the Windows XP Professional version can join a Domain. If you have XP Home versions, then you would also have to replace the workstation operating systems to get the functionality of a server based Domain security model. This can get very expensive so you would have to look hard at all the benefits and weigh this against the cost.
If your office is in a growth pattern where you may grow to more computers than what you have now, then moving to a Domain with a server such as
Windows Small Business Server would be worth the cost of upgrade.
The amount of expertise to implement a server based system such as SBS is much higher than using a Workgroup based system so there would be a learning curve as well as some possible time spent in the classroom. You can download a trial version to see if it is right for your business. Also, the server is a dedicated operating system and the same computer should never be used as a workstation so an additional hardware purchase for a server class computer may be required.