Hello folks, before the smiting begins for not using the search function I just want to say that I did not want to revive a 3 month+ thread and still have someone on my back, not to mention I need help with this step by step.

Anyways on to why I am here. Using the above mentioned computer I wish to make a server witch can be accessed by me from anywhere with an internet connection, so I upload and download files from and to it. Plus if possible use it as a proxy (some of my common places for connections have blocks to websites that I need to access). I do not care if it needs a gui or needs to be text mode, neither witch distro it may be as long as I am able to learn it from scratch.

I'm not entirely sure what the question is here, but any linux system should be able to provide these functions to you with a minimum of fuss. You can set up SSH and/or VNC for remote access (SSH for command-line, VNC for GUI); FTP (or SCP) would probably be the simplest method for transferring files to and from your server; and I've never actually had to configure a proxy, but some quick googling should be able to return some instructions for that.

Ubuntu and Fedora are both good first-time linux distros and both would be able to do what you need. A good idea for you might be to setup a server using these instructions:
http://www.howtoforge.org/perfect-server-ubuntu8.04-lts

This will provide everything you need (and more) except for a proxy. For this, there are any number of results on Google, but at first glance this page looks pretty handy:
http://www.ehow.com/how_5019947_set-...er-ubuntu.html

Good luck!

Thanks for the links but, but right now I am stuck on step 7 since I don'
t know how to edit the file. Help would be much appreaciated

Sorry, but again I'm going to need more detail. Are you referring to:
http://www.howtoforge.org/perfect-se...ntu8.04-lts-p7

If so, I don't see any explicit instructions to edit anything. However, whatever you're trying to edit, the answer is fairly generic. If you're at a command line/text-only interface, open nano using this command:
nano file.txt
(Where file.txt is the file you want to edit). nano operates the same way as notepad in Windows; when you're done editing the file, press ctrl+x which will prompt you to save, then close the program. If you're in a graphical interface where you can use a mouse, gedit is probably your best option; on most systems this will be under Accessories->gEdit text editor. It operates exactly like notepad in Windows.