We have found no real difference as far as performance goes. Of course the big difference is that you can set up many servers on one hardware box with the virtual server instead of paying for multiple harware servers. Saves space and power! Moving them from one virtual server esx box to another is simple and migration off of hardware to the virtual environment has been easy as well.

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Answer from Edwin Yuen of Microsoft:

Virtual Servers have hardware that is abstracted from the local hardware and run on top of physical servers. Once you virtualize a server, that server really is a file or object you run and you back it up, move it, and clone it easily.
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A difference is also that your resources are shared. You nic card, fibre card, hard disk, cpu, memory, are all shared.
This sharing doesnt cause any practical problems. But that is the big difference between physical and virtual servers.

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