Conclusion to my story:

I ordered a $300 1TB drive with sled from Apple yesterday and just slid it into the Xserve. It appears on the shared screen before I climb the stairs back from the data center.

So on the street I could get a 1TB for $100 plus the sled for $155. Close enough. The fact that I could pop the 1TB out of the sled and pop my 2TB ($189) into it is the only thing that irks me. The way my data are expanding right now I will need to pop another drive into the last bay in less than 6 months. Hopefully Apple has a 2TB with sled or greater size by then.