How to set up encrypted Time Machine backups to a remote drive?
I don't think that you can do quite what you are proposing (have the external drive connected to the server and only accessible to your local machine. That said, Time Machine at least used to be able to create a new encrypted disk image on network shares and back up to that. (In fact, under Leopard this was the only way to create an encrypted backup volume for use on a local drive.) 

Unfortunately, I don't know whether the Time Machine service on your Mac Server will store your backup in a per-machine encrypted disk image like Time Machine on Leopard would. Maybe someone else can answer that piece.