Software RAID isn't too bad at levels 0 and 1 because there's no real calculations going on, just another disk write, but Software RAID 5 can eat CPU cycles because it's gotta generate parity bits for every write. Also Linux software RAID has been known to be the same or better at RAID 0 or 1 with hardware setups, I have no idea how Windows software RAID runs and frankly I wouldn't trust it.
If the server is holding data that's worth anything to the company get them to pay for hardware RAID, preferably SCSI with hotswap drive bays. The price up front is higher but you'll get better performance (SCSI works a lot better with multiple drives than IDE), better reliability (MTBF is higher with SCSI drives) and hotswap means if one drive actually does fail there's no downtime to replace it. I would also go with a "big name" box like Compaq or Dell, mainly for support, you don't want to be buying replacement drives at CompUSA late one night because you don't have a support contract that brings the replacements to you.
The database will be running 4D software for a patient database for medical procedures. It will be accessed through a hospital intranet by as many as 7 users at once. The license we bought was for 7 users, but we may increase it as the need permits.
With only 7 users I don't think the database or drives will be too stressed in either situation, but like I said above I wouldn't put a homebrew box in a position that needs high availability, it may work fine for a long but time the one time it does break the sh!t hit's the fan and you don't have anyone else to blame (i.e. Compaq or Dell).