Is it better to have four average servers or one awesome server

I'd almost always pick multiple servers to provide flexibility and redundancy in case of a hardware problem.

Up until the "pre owned" tag I was with your colleague. I would not rely on a refurbished or second hand server to host any thing critical.

But generally I would prefer "more lower specced" servers over one mega powerful server, eggs and basket and all that.

As you also suggest that you'll be doing development work, that development work needs to be elsewhere rather than on a production system - how many times do you hear "Oh, I didn't expect that to happen".

From a developers perspective having more servers is a good thing as you can split the database server, web server and domain server onto separate boxes. It also means that if you need to flatten or upgrade your development server you can do so without affecting the production servers.

I know you can achieve the same with virtual servers, but with physical boxes you have redundancy (in case of hardware failure) and flexibility (each physical box can run a couple of virtual servers) as well.