"when I turn it on, after POST, it comes up with "boot device not available, strike f1 to retry, press f2 for setup"
This just means that there is no device with bootable media.
what version of Ubuntu are you installing? DVD drives were NOT standard on 2650's, and Ubuntu 13.04 (and 12.10 too, I think) was DVD-sized, so make sure you actually have a DVD drive you are attempting to install with.
Boot to BIOS Setup (F2), make sure that the optical drive is enabled (in Integrated Devices, I believe), and that it is listed AND enabled (checkmark) in the Boot Sequence.
That said, yes, your drive may be toast if you aren't ever able to boot to a CD. Many older laptop drives will work in a 2650 though ... if you have one handy.
No, these servers are too old for booting USB.
I'm not sure about installing Ubuntu via PXE, but there are articles on Ubuntu's site for doing just that.