Unfortunately, I don't have the luxury of planning and designing this room (closet, like you said) from scratch. It was already the telco room with DEMARC, punch down blocks, and PBX phone switch (which is a tower PC server, actually). The rest of the space was used by shelves for storage (these have been moved out). This is more of a relocation of existing equipment than the planning of a complete data center.
From the other posts, it seems the concern is not the rack vs. cabinet (other than ease of access), but the cooling in the actual room. There is a dedicated AC vent in that room, although I doubt it can be separated from heat in the winter. I'll check with the building management.
The room is surrounded on all sides by other rooms in use, other than a storage room. The door has a small gap under it, so air can escape there. I can look into adding a fan in the ceiling, but I'm not sure where the air will escape to. A real concern, since this is a small business, is cost. The enclosed rack I'm looking at is a used model, definitely not a new $1,500 item (or $500 for a 4-post rack).
The PowerEdge servers were bought in 2001. I've seen the tower-to-rack conversion kits. www.racksolutions.com has sliding shelves that would probably work just as well.