Request Timeout expire

Hi all,
we have 20 client machines connected to a server,we don’t have dedicated server we have one desktop pc treated as a server and the configuration is intel pentium D 2.67 Ghz processor and 4 gb of RAM. we are using this server as a domain controler and have sql server database 2005.My problem is that whenever i am trying to connect to sql server, fro client machines it gives error as request time out expire, and server is taking to much time to process each request and generate response,Please guid me whether we need dedicated server to resolve this issue and in such case what will be the best server to handle the load of 20 client machines