Installing the tools in VMware Server 2 is a little different than Workstation or the previous versions of VMware Server. Under the Summary tab of your Virtual Machine, look for a link that says "Install VMware Tools" -- click it.
Wait for 'Success' to show up on the bottom, and jump into your virtual machine. Mount the tools as so:
mount /dev/cdrom /media/cdrom
And install as normal (copy the .tar.gz to /usr/src, extract it, install it). Easy peasy.