In October Microsoft will release Virtual Server 2005 which could have a big impact on a lot of web hosting data centers, i.e. the new product will allow the aggregation of a lot of servers making rack space less of an issue.
While Virtual Server is not as mature as VMware it can offer 2 things that VMware cannot; most notably Microsoft support and a cheap price. While, as usual, Microsoft doesnt support non-Redmond products although Virtual Server can run Linux and OS/2, they will probably do very well in the SME market where Microsoft servers are more prevalent and price is more of an issue with Virtual Server 2005 pricing at $499 for the standard edition (up to 4 processors) and $999 for the enterprise edition (up to 32 processors). This is a significant drop from VMware's ESX Server which is around $4,000 for 2 CPUs while their GSX Server is almost $2,000 for a 2 CPU system.
Microsoft initially purchased Virtual Server from Connectix and then revamped it. Virtual Server 2005 requires Microsoft Server 2003 to run as a base operating system while ESX server uses its own operating system. This allows ESX server to perform at a higher level than Virtual Server because of the overhead(500MB RAM) that the additional operating system requires. Virtual Server 2005 is also a 32-bit application and can't run 64-bit guest operating systems. Guest operating systems are limited to just one CPU apiece as well.
In other words, Virtual Server 2005 may not find a home in many high-end Linux data centers but for smaller shops looking to consolidate a farm of older Microsoft machines Virtual Server 2005 could well be the best choice.