xf86 4.1.0 has support for the rage 128 with the "ati" driver - it needs to be specified in the /etc/XF86Config file. however, i know that a few people have had significant trouble setting up an ati card - if you search this site, you should find a few threads on the subject.
for your question : no, you don't need x. it just makes everything prettier and easier. even if you can't get accelerated support in the ati rage 128, you should be able to get x running.. but, if you're just trying to set up a bare-bones server, then you might want to leave out x. personally, i would set it up anyway, for the occasions when you would want to work directly on the server after it's set up. you don't need to keep x running all the time.