MacBook Pro or Mac Mini as music server

Your dealer might be thinking about the simplicity of an all-in-one computer, but you have to consider whether you really want a full-sized screen in your audio rack? The Mini is tiny in comparison and can run without a monitor. You'll need one to set it up, but it can run headless after that for everyday use. The "Remote" app on an iphone or itouch gives you full control of iTunes. Or, if you have a laptop, you can connect to it via Screen Sharing (VNC) using a web browser on a Mac; or TightVNC, UltraVNC or RealVNC if you're on Windows. The Mini is an amazing little device.

As a side note, if you have a flat panel tv in your audio room, you can connect the Mini to it and stream movies from Netflix, Hulu, etc. It adds an extra value to the situation if you've ever wanted that functionality.

do you guys leave it on standbye when not in use ?

This is a matter of personal preference. I leave mine running all the time. Energy Saver is set to never sleep. If you don't use it everyday, you might want to shut it down and power up only when you need it. You don't need a monitor for this. You can power down from your remote device (ipad, laptop).

At somepoint, especially in initial setting up, is monitor needed ?

This will be the easiest way. When you're done with set up, you can remove the monitor and use your ipad or laptop to remote in and do everything you need. Here are instructions on how to set up screen sharing:

http://docs.info.apple.com/article.html?path=Mac/10.6/en/11848.html

If you are using the MacMini as a server, how does one disable the other functions not useful for music making ?

Instructions to disable Spotlight:

http://hints.macworld.com/article.php?story=20091030173117381

You'll want to have some sort of backup system in place. You'll get plenty of advice for different routes to take. IMHO, the easiest approach is Apple's built in software called Time Machine:

how to set up Time Machine to perform backups

You'll need an external hard drive for this. In my experience, smaller 2.5" USB and Firewire drives are significantly quieter than 3.5" drives. They get their power from the cable connected to the Mini. 3.5" drives have a separate power supply with fans which makes them inherently louder. Sizes and pricing on 2.5" drives is not as good as 3.5", but you can find 500gb for $60 and 750gb for $80.