I've been thinking about this for a while but this blog post by Pascal Meunier pretty much sums up my feelings about Virtualisation.
Back in the 90s when the Internet was new-ish and just becoming important all the machines running it were Unix boxes. (Maybe not all, but most). And a 386 would typically run DNS, sendmail, telnet (shell accounts), ftp and apache. All on the same box.
Security wasn't so tight in those days but it was usually good enough and the box could happily do what it needed to do.
Along came Microsoft and produced the idea of "one box - one service". You can't seriously consider running your domain controller as a file server. What are you thinking? And to put mail on the same box? No way. In fact, your SQL server is running under significant load, chain a few together.
And companies would buy into this concept. Microsoft were happy - more licenses. All the PC guys were happy too - more money. More complexity - more jobs.
Essentially what has happened now is that Moores Law has kicked in and has caught up with the complexity of Microsoft's software to the point where one server box can run multiple applications on it. Imagine that. But Microsoft has planted the one-service-one-box concept so well that it is now part of IT law. File server and mail server on one box? But wait...whats this button over here....? Vir-vir-virtualisation.
And now we have the tools to allow us to once again run multiple applications on one server without having to admit that one-application-one-server never made sense.
To be fair - Virtualisation does have other advantages - running multiple Operating Systems for example, being able to easily move a virtual machine from one box to another (without configuration issues), being able to make a snapshot backup of a system.
But running multiple applications on one box is not a huge win.