We are using a mix of virtual servers and hardware. I think the virtuals are
VMware.
Our current system uses a three-server farm configuration. The project
server application and sharepoint central admin are on one virtual server.
The main SharePoint Services and PWA/PSI are on the second virtual server.
The third server in our farm is the SQL Server 2005 which is on hardware. It
is shared with other applications and loaded with Analysis Services,
Reporting Services, etc.
So far, things are running fine. We have migrated only a few users but some
large projects to PS2007. Within a month or so, we will have migrated over
100 projects and a larger number of PMs.
The production servers that host the virtual servers are pretty hefty, able
to handle a lot. This is probably the reason we have good performance. Our
understanding here -- if we begin taking performance hits from virtuals,
then the poor performers will be migrated to hardware or might expand the
farm to virtuals on other hardware.
For your situation -- depends on the number of users, projects, web access,
etc. as well as what servers are going to host the virtual servers.
Best of luck.