Just yesterday we went live without incident with Ubuntu 8.10 functioning as both a Linux terminal server across our local area network and also serving as the DHCP server for Windows Active Directory machines. I have put together some notes that I hope will help anyone else to do this a little easier. In my own case this particular server is virtualized in VMWare ESX and is setup to use two network interfaces and currently I have it configured with two gigabytes of RAM and two processors. I expect that I will have to increase the RAM up to four gigabytes and higher as we add thin clients.
Ubuntu's standard install of the Linux Terminal Server (LTSP) is configured for a subnet. I wanted to put on our main LAN segment so I could easily place thin clients in classrooms. If you want to follow my lead then you'll need to follow my directions but change your ranges and scopes accordingly. I used the Ubuntu 8.10 Alternate Install ISO which you can download from Ubuntu's website. I'm sure you can easily build either a physical or virtual server using my example.  One of the tricks to this installation is the inclusion of the option statements at the end of the DHCP configuration. We found that both Windows and Linux clients booted much quicker with the option statements found at the end of the DHCP configuration file.
Use the Ubuntu 8.10 alternate install CD and option F4 at boot for the LTSP server.

## Network Interface Settings with two cards
# This file describes the network interfaces available on your system
# and how to activate them. For more information, see interfaces(5).

# The loopback network interface
auto lo
iface lo inet loopback

# The primary network interface --this goes to the internet.
auto eth0
#iface eth0 inet dhcp
iface eth0 inet static
    address 172.16.100.82
    netmask 255.255.252.0
    gateway 172.16.100.1
   
## This interfaces is where DHCP will be served.   
auto eth1
iface eth1 inet static
    address 172.16.100.81
    netmask 255.255.252.0
    network 172.16.0.0
    broadcast 172.16.103.255

## edit resolv.conf
## add your own DNS servers in the following fashion
## nameserver 172.16.100.30
## nameserver 172.16.100.23

## Set the interface for DHCP to listen on
## This is found in /etc/defaults/dhcp3-server
## edit the file and insert the interface DHCP will listen on.

# Defaults for dhcp initscript
# sourced by /etc/init.d/dhcp
# installed at /etc/default/dhcp3-server by the maintainer scripts

#
# This is a POSIX shell fragment
#

# On what interfaces should the DHCP server (dhcpd) serve DHCP requests?
#    Separate multiple interfaces with spaces, e.g. "eth0 eth1".
INTERFACES="eth1"

## DHCP Config found in /etc/ltsp/. This is the DHCP file for Ubuntu LTSP

#
# Default LTSP dhcpd.conf config file.
#
default-lease-time          21600;
max-lease-time              21600;
ddns-update-style-none;
allow booting;
allow bootp;
authoritative;
option subnet-mask 255.255.252.0;
option broadcast-address 172.16.103.255;
option routers 172.16.100.1;
option domain-name "franklinville.local";
option domain-name-servers 172.16.100.30, 172.16.100.23;
option root-path "172.16.100.81:/opt/ltsp/i386";
option option-128 code 128 = string;
option option-129 code 129 = text;
option option-221 code 221 = text;

subnet 172.16.100.0 netmask 255.255.252.0 {
    range 172.16.101.151 172.16.101.254;
    range 172.16.102.1 172.16.102.254;
    range 172.16.103.1 172.16.103.199;
    range dynamic-bootp 172.16.103.200 172.16.103.253;
    use-host-decl-names     on;
   
   
   
#   next-server 192.168.0.1;
#   get-lease-hostnames true;
   
   
    if substring( option vendor-class-identifier, 0, 9 ) = "PXEClient" {
        filename "/ltsp/i386/pxelinux.0";
    } else {
        filename "/ltsp/i386/nbi.img";
    }
}