This confounded me until it I sorted it out. Once done so, it made sense, but it doesn't help that, in this case, the user interface is unhelpful and unintuitive, and the behavior is different than other configurations for similar machines. (Note: I haven't regressively seen is this is the case pre-Mac OS X Server 10.5.7 Update or pre-Server Admin Tools 10.5.7.)
On this Xserve (Late 2006), Server Monitor.app on the local machine has the LOM feature configured for Network 1 (which corresponds to en0 aka the port labeled Ethernet 1 on the machine and by default the Network preference pane). This LOM interface has its own MAC address distinct from the physical port. I've registered this address for convenience's sake.
To configure this server for monitoring, launch Server Monitor --> Server --> Configure Local Machine. Give it an IP (again, distinct from the physical Ethernet ports), give it a username and password. This is the only step that's the same on this and the Xserve (Early 2008) model.