VMWare is the way to go

At my current company, about 80% of the servers are virtualized into VMWare's ESX system which has a ton of flexibility. We have Dell 2850s and 2950s with fiber channel cards connected to SAN and they live as clusters in the VSX infrastructure. As long as the SAN storage is visible to each server that makes up the cluster, virtual servers can be moved around at will. The management software can do it automatically or you can do it manually. That means if you have a hardware problem on one machine in the cluster, you can move all of the virtual servers to the other hosts, take the host off line, fix it, and bring it back up without any of the servers going down.

The ESX system does need at least one physical server to act as the control and management server and you need an available SQL server. After that, you can add and cluster hardware to hearts content. We have a pricey EMC SAN but you can get the same cluster support with iSCSI devices. As long as each host can see the shared storage, you're good.

There are a couple of servers types that just don't virualize well. Maybe I'm not spending enough effort to find out how to do this, but I would recommend against virtualizing:

• Active Directory domain controllers
• SQL servers
• Firewall / Routing devices (ISA or m0n0wall)
• Any server product that needs IPSEC support
• Servers that need really, really fast hard drive I/O

Almost all other servers are easy to virtualize. This way, you can actually have one dedicated web server per application, too.

Cost is a bit of a problem, I suppose. The VMWare pricing is fairly cheap compared to the feature set but the costs of the Windows licensing is not included. You have to do a lot of research and digging to make sure you are really buying what you need.