To answer the second part of your question first: Trying to do this leads into legal issues to do with licensing. The licence for the software generally states that it may be installed on one computer at a time, and run only on that computer. Therefore, unless you have an unusual licence, whether or not you can install the software to the network drive and have it work, you probably shouldn't. Furthermore, it is unlikely to work as most applications need registry keys on the local machine to function. You could install an application to a folder on the server, but in most cases it would only work on the machine you installed it from. Even doing this is probably a licence grey-area.
Most versions of Windows are not designed to be installed on one machine and booted on another, and expect to have their %SYSTEMROOT% on a local drive. This is likely to cause problems. You have another problem, however: How would the workstation machine know how to boot from the server? You would need to use PXE, which requires setting up a DHCP server on the server, and other complexities. You would then need a modified version of the Windows 7 bootloader capable of loading from a network drive, which I do not believe exists.
There may be a VMWare solution, but I'm afraid I don't know of it.