Several years ago, the Microsoft .Net product manager and his family were house guests at the same home where Carol and I spent a weekend. One of our longer topics of conversation (in addition to the Linux teeshirt that I quickly changed into :-) was virtualization and how it would change the deployment landscape.
Let me introduce my own prejudices: Virtualization is simpler when using open source operating systems and software - avoids license hassles. That said, regardless of which operating systems that you use, virtualization is a great tool for reducing the number of "physical" servers required to run older software. I used to lease very inexpensive dedicated Linux servers and configure and manage them myself. I now lease semi-managed Xen hypervisor based "virtual" servers - with operating system and infrastructure software choices selected for need. The time savings has been substantial for me and performance is both good and can be easily changed by upgrading/downgrading service plans. Service providers can inexpensively offer backup, automatic restore, and automated migration services.
Using Virtualization in your own data centers allows you to maintain old operating system configurations for legacy software systems, and migrate services between servers as needed - all at reduced cost.