Good friend of mine Brian Randell builds alot of the Microsoft Team Foundation Server hands on labs and launch demos all of which run under Microsoft Virtual Server...He saw my email i sent to the development team: Microsoft Recomending AGAINST running TFS under a virtual enviroment? and had this to say:
The main issue is performance. TFS on real hardware requires a good hardware configuration. Many virtualization deployments are about consolidation, hardware cost savings, etc.
Naturally, most of know from experience that TFS runs just fine in a VM when given a fast disk and enough RAM.
If run under Virtual Server using multiple SCSI VHDs partitioned on fast "real" disks, and the right amount of RAM, people should be happy. Where things fall down is improperly configured VMs. I've found on machines with 10K RPM drives and the right amount of RAM, a VM will "feel" just as fast as a real machine. Slow the drives down, don't provide enough RAM, and well ... those in the field with older laptops know the pain. This would only be magnified in team environment.
I did a two-day visit to a large media company and found they were using TFS in VMs for many small teams. However, they were unhappy with performance. I asked them a) how many disks, and b) did you install the latest VM additions. The answer was 1 VHD (IDE) and no additions installed.
The only issue is to make sure they don't add products to the VM that aren't currently supported like ISA 2004 (just using it as an example of one currently unsupported SKU).
For more information on Brian's views on Virtualization make sure and check out his Dot NET Rocks episode: