So if you buy R1, there is no Windows Update that brings it up to R2 specs?

No. Its a completely different OS based on a different Kernel. Think of windows 7 as being Windows Vista R2. It looks similar, but is completely different.

Interesting,
How would I know if I am using R2 or not? As I have two dedicated boxes, but when I goto properties on My Computer I don't see anything that stays R2.

Chances are you are not running it since it just RTM'ed last month. But you can go to Start--> Run --> and type 'winver' and it will clearly state what you are running.

I did that, Version 6.0 ( Build 6002: Service Pack 2 )

Yeah I don't think its R2.

Thanks for the tip, I will make sure I get the newer version

Just found the WIKI that details the upgrades and how to tell the difference

If I install the Evaluation version ( downloadable from microsoft's website ) is it possible to upgrade it to a full version, or do I have to do a complete reinstall from scratch when that time comes?

I'm fairly certain that you can just enter a key. You might want to read the site to be sure.

Jason,
You said something about getting an OEM version for $149. Where do I go to get that?
Its looking like the web edition is going to be $469

hmm.. I thought we paid $149. I'll have to find the receipt. But here's the version and location we purchased:

http://www.newegg.com/Product/Product.aspx?Item=N82E16832116466&cm_re=Windows_Server_2008_Web_OEM-_-32-116-466-_-Product

I would be happy with $349, but $149 would be even better.
Maybe newegg will get some good deals on the day it comes out