Apple announced it will cease selling its Xserve lineup in January 2011, instead the company will ship a more affordable Mac Pro Server desktop computer. The Xserve has been around since 1996 but Apple's rack-mounted server lineup was never a success as the machines were significantly more expensive than competing products.
Apple is replacing the Xserve with a new product -- a Mac Pro Server desktop which is definitely not 1U mountable. Available now, the default configuration weighs in at $2,999 USD (the same base price as the discontinued Xserve) and features one quad-core 2.8 GHz Intel Xeon "Nehalem" processor, 8 GB of DDR3 RAM (four 2 GB sticks), two 1 TB hard-drives, an ATI Radeon HD 5770, and a copy of Mac OS X Server, complete with client license.
While $3K USD sounds like a lot for that kind of hardware, it's really not as overpriced as some of Apple's other products -- at least when it comes to products from OEM competitors. While you could probably assemble a server piece-wise for significantly cheaper, Hewlett-Packard's closest competitors are in line with Apple's pricing.