I am planning to install SPS 2003,do I need to install it on windiws sevrer
2003.

Yes, you have to use Windows server 2003 and it also requires that the
server is part of a domain

This is not available for the SQL based document stores, only for SPS 2001 and
the SPS 2003 backward-compatible document stores.

Assuming you are using the backwards-compatible document libraries
(otherwise, you can't limit  the number  of versions):

Navigate to the Change Document Library Settings page by doing one of the
following:

* On the SharePoint Portal Server Central Administration for Server
server_name page, in the Component Configuration section, click Configure
document libraries (Web Storage System-based) . On the List and Manage
Document Libraries page, click Edit for the document library that you want
to change.
* On the Site Settings page, in the Manage Portal Document Libraries
section, click Change document library settings.

To limit the number of previous major  versions of a document to retain when
the document is approved, select the Specify version limit check box, and
then type a limit in the Number of versions  to retain box. Note This
setting does not affect the number of minor versions retained.

That is a bit of a problem that
one cannot limit  the number  of versions  for the SQL based document stores -
manual deletions of versions is going to be an administrative nightmare. I
hope Microsoft make this possible in later versions...

With some custom development (using document library events), you could have
logic at the document Update/Check-In stages to prevent these actions when a
version limit  has been reached. It sounds possible judging by the SDK, but
I haven't tried it.