I have been told that Small Business Server 2003 doesn't work quite the same as Server 2003. I have a small office with 4 pc's running xp pro. The SBS 2003 machine is running SQL 2000 server. This server was setup to run a third party app that is basically a front end for the SQL data. This office is configured as a workgroup. In order for them to upgrade the 3rd party app properly, they need to be in a domain. So my question is, since the sbs server is the only machine in the local domain, do I need to run dcpromo on it before I can add the other machines using AD.

Yes.