This is a result of the New World ROM architecture on these computers. When trying to start up from the default operating system, it will scan drives and partitions until it finds a suitable one. If it comes across the MOSX_OF3_Booter partition first, it will start up with Mac OS X Server instead of Mac OS 8.x.
The MOSX_OF3_Booter partition is a hidden Mac OS format partition that contains a blessed System Folder with a Finder, System, and BootX file. The BootX file is analogous to the Mac OS ROM files used in Mac OS and is needed to start up Mac OS X Server.
Solution
Make sure Mac OS 8.5 or later is installed on the first partition on the drive.