Virtualization has many advantages. I use a Virtual server for this website. Virtualization helps in testing new environments and new software. One can run a virtualization package on a mac, and use windows without rebooting. If I am working on a project, and someone reports a bug, I can set up a virtual machine that replicates the environment that the bug happens in.
The trouble comes when someone decides to move production things to virtual servers.
Where I work is a prime example of an extremely inefficient use of computing resources due to virtualization. The virtualized machines were meant to give individuals their own server quickly and easily. This is fine. It was decided to host a few services on the virtualized machines instead of using existing machines. There is one virtual machine running mysql on one distribution of linux. There is another virtual machine running another linux flavor that was created to serve up php applications via apache. There is yet another virtual machine that runs oracle. This creates a management nightmare. The gui tools that vmware server provides lulls the unsuspecting into using the console feature. Most of these virtual machines are running X all the time-- what a waste of resources!
It wasn't decided to add all three services on three separate machines at once. Oracle came, and then when mysql came up, the virtual machine was created as a test pot, but ended up being used in production. The same happened with the apache virtual server.
Virtual machines, by nature create a tendency to build unorganized networks and waste resources. They have their purpose, but I don't believe they have their place being used as the intended medium for production services.