Does the server component only run on linux ?
You can compile it for Linux, Windows, or Mac. We usually go with debug mode, but optimized mode works too.
I have a celeron 533Mhz with 786MB of ram just sitting there doing nothing that I could use as my test server.
That's a bit slow. Probably could get it working, though. Usually, if you want to test the best route is to just run everything on one machine. You don't really need to go across a network for most testing.
Is the choppy nature past several hunded due to Network Bandwidth or Memory Page Swapping ?
Most of our swap issues have been fixed now. There is a noticable hit from all the extra messages, but I think most of the lag is from having more entities to keep track of sucking up extra cycles client-side. If you walk into a heavily populated area, you can also really notice the pause as it recieves and deals with all the persistant actor messages. Players have also complained of lag caused by littered items in certain areas.
We've never really even had 200 on at once, and even when we get close it's not that bad. If they all kept away from eachother, it probably wouldn't ever be noticable.

However, when there's a few dozen people running around in the same map they all need to know about everyone else's movements. So, the total number of messages goes up as the square of the number of people involved. If you goto the plaza when there's alot on, people loiter, and you'll notice what I'm talking about. However, go off to the bottom of the sewers or something and it gets much better.
Do you use compressed packets for the PlaneShift network trafic ?
Most of it isn't. I compress one big message at login, because it's only compressed once and reused, then only decompressed once at login. Some of the messages are packed rather simply, and wouldn't benifit from compression. Others are bloated XML...

However, the only other messages that could really benifit from compression are the character creation messages.