I spent some time learning more about Virtual Server last week at TechEd.  Virtualization has some great uses I believe for the data center and saving costs.  The current state of Virtual Server R2 makes it not very good for SQL Server.  I think that the promise of Vista / Longhorn and the VM enhancements of that release may bring some very real possibilities of satisfactory performance within a VM.  The current state is still great for testing or proof of concept items, but stay away from mission critical production environments.  If you still want to "virtualize", many hardware vendors can "carve" out processors and memory from a bigger server to make this happen.