I used a plain Pentium computer (< 200 mhz) for a webserver. Very, very, very slow machine. I can't emphasize how slow it was. However, it served pages very fast! I was surprised.
Yes, Linux is great for running complete servers with scripting, databases, mail, and more, all with only a command-line. All administration is quite easy, too. In fact, there are a few organizations that specialize in creating a text-only webserver distro. Pretty cool!