The "Folder Redirection" feature of Group Policy will help you a lot. It'll work on both your Windows XP and Windows 7 machines and will get the users' "My Documents" out of their local hard disk drives and onto a server computer (or NAS device, if you like-- it doesn't have to be a Windows Server machine but it does need to be accessible from the clients via UNC path).
This is a decent document from Microsoft describing the feature. Because it's user policy setting it's easy to create a test user or group to experiment with the settings before you go into production.
Some hints from my use of the feature (which I use heavily):
Pre-create the folders for the users on the server computer and use the setting "Redirect to the following location." in the folder redirection policy (rather than the "Create a folder for each user under the root path." setting). I create a top-level folder with the permissions Administrators / Full Control, System / Full Control, and Authenticated Users / List Folder Contents - This Folder Only, and then create subfolders for each user with the User's account specified with Full Control permission. This gives you control of the permissions and doesn't mess up the permission inheritance hierarchy. (You can see me rant about this a little more in this answer.
Turn off the silly "Grant the user exclusive rights." setting on the folder redirection policy. This, too, messes-up your permissions for no good reason.
As far as pitfalls go, be aware that the initial logon when the folder redirection policy begins to apply can be quite slow if the user has a lot of documents to be redirected. The users should be made aware that the initial logon may be slow.
You might want to look at redirection of the "Desktop" and "AppData" folders too. There can be a lot of user state data there that really should be backed-up. Roaming user profiles can give you the ultimate centralized storage and backup of user state data but it's definitely not as easy to get working well as plain ol' folder redirection.
You should not attempt to store PST files on UNC paths. You're begging for "corruption" of the files if you try. The "supported" method for central storage of Outlook data, from a Microsoft perspective, is Exchange Server. If you're not using any of the features of Outlook aside from email you could look at something like an on-site IMAP server.