so can it play all Windows games?
because I doubt it
No. No operating system except for Windows itself can run
all Windows games.
But a decent amount of Windows games run in Wine. You can see how well various games run at
appdb.winehq.org.
Here's Blockland, for example.
I've found that (GENERALLY) the older a Windows program is, the better it will run in Wine. This is not always true, but I've found it to be accurate in most cases.
Xubuntu
No offense, but why would a server run X? Everything you need to do on a server can be accomplished through a terminal, which requires much less overhead.
If you're looking for an extremely lightweight version of Ubuntu, I would recommend
Lubuntu or
Mint LXDE (new version isn't out yet :(). XFCE has been becoming more and more of a heavyweight lately. LXDE is a relatively new project that tries to stay as lightweight as possible.
XFCE is still much faster than KDE though (and GNOME for that matter).
Can you play blockland on it?
It's kind of glitchy for some people (cough) but it does run pretty well.