Is it legal and "workable" to use a Mac Pro as a thin server for Mac OS?

Can you use VNC (or ARD or some other remote desktop software) to remote into a server to do development work?

Short answer is "yes."

However, it is a royal PITA. I use VNC to administer my OS X machines on my gigabit LAN and I can tell you that the lag is infuriating. Trying to do development work, I can only imagine it being a nightmare.

What worked for my developers was that we had several MBPs that would float around the department depending on the project. For "quick" tasks VNC worked, but when they needed to be heads down on a project, they would check out a MBP and use it for the duration of their task.

The main thing to keep in mind is that people like what they like - Mac/Linux/Win. The "hotelling" concept is a nice goal, but not feasible for devs who spend their lives in front of a monitor. Ensuring work is accessible anywhere is the reason we have a cloud and GitHub. These are areas you should investigate thoroughly before you spend time trying to re-architect your infrastructure.

I am not a lawyer, and this should not be construed as professional legal advice.

Is it legal? As long as you have a legitimate license to use OS X and you create separate accounts for each user who needs to access the system, then I believe the answer is yes.

Is it workable? Based upon my own experience with remote desktop protocols and the anecdotal evidence of the other commenters here, no. Because of network load, network latency, and CPU load the experience will not be optimal for your users. It will, in all probability, reduce the ability of your developers to do their work, and harm your company's profits.

If you want a scalable cross-platform solution for remote desktop, packages based on VNC are your only choice.

More consumer-oriented packages like Teamviewer or Chrome Remote Desktop are also available on multiple platforms, are easier to setup and have better security out of the box, but are most probably not a good choice in the longer run.

It doesn't have to end there though. If the cross-platform/remote-compiling is the main thing you're after, perhaps you could have a look at Jenkins. You can opt for a setup either at your company premises or - as many prefer - on a colocated machine in a datacenter.

Some of the top guns at the Apple store (on iOS and OSX) are using this to automate and manage their projects across multiple developers in-house and abroad.

You can have multiple build machines on multiple platforms, it's quite expandable. And it's FOSS.

Even though technically it would work, having your developer, working on a windows machine, VNC'ing to an OSX machine to write his code on, is pure torture. Even if the VNC server machine is placed right next to his', there will always be -a very small- delay. This might not be noticeable when doing small hacks, but when typing loads and loads of text for longer periods, it does. It will never be the same than writing on his native machine.