Something like a Geforce 9500 GT or a 8600/8800 GT will be fine for what you'll be doing. If you were in Brazil I'd sell you my old 9800 GTX+. Please don't buy a crappy card like the 8400 GS
Stay relatively period-accurate - don't get anything newer than that, your old PSU probably won't like it. Though I suppose it's a good quality PSU, going by the rest of the components. For sure that PC wasn't cheap back in 2006.
The DVD that came with your MacBook Pro is model-specific and will only boot on a MacBook Pro. There's a guide somewhere on here on what you can do to get around that. /EDIT I found it, see link below.
Use your MacBook to prepare an OS X installer on a 8GB USB flash drive. Be careful that you don't install the Hackintosh boot loader (or anything else) on the MacBook's internal drive by accident!
It's great that you have the MacBook, this way you can easily experiment with things until you get a good result.
Your Irwindale Xeon is based on the Prescott Pentium 4 which means you will not be able to use an unmodified kernel (Intel OS X only supports Core microarchitecture CPUs).
Either try to use the Chameleon kernelpatcher module, or a Voodoo Kernel derivative. If you use a modified kernel, it must match the version of Snow Leopard that you'll be installing.
You don't need to do anything to your blank hard drive, just plug it in. Before starting the installation process you'll be able to run Disk Utility and format it first, just like you would on a real Mac.
I hope your PC has SATA. PATA will work but it's a hassle even when it's Intel, usually PATA requires unplugging other drives, changing jumpers, specific BIOS settings, using modified drivers etc.
If you manage to boot into your USB installer but Disk Utility does not show any drives at all, that's your first sign that you need to do some work in this area.
Note that I cannot promise you that everything (sound and ethernet in particular) will work. You'll have to look for specific solutions on here for those. If they exist.
Macs don't have PS2 ports. Use a USB keyboard + mouse.