If Win 2000 installs in a VM, would it not also install on the hardware?
Your original question presupposes that it wouldn't:
"I was wondering what would happen if my Windows 2000 system went belly
up, and I was not able to install Windows 2000 on new hardware."
But to turn it around: If Win 2000 won't install on your hardware, would
it install in a VM?
Certainly yes if you're using either Virtual PC or VMWare. The virtual
machines that these programs present are very vanilla boxes so any needed
drivers are either supplied by the Windows installer or added later via
the VM software's tools. I've got everything from NT4 and Win98 through
VISTA running in VMWare VMs.
Apart from that, it's a lot simpler, faster and cheaper to fire up VMs as
needed than to maintain multiple boot partitions or separate PCs for each
OS you want to test with.