ARS Technica reports that Windows Vienna, the next version of Windows which is expected in 2009, may feature "full virtualization":
Fathi's hint that Microsoft is considering "hypervisors" echoes similar claims we've been hearing from sources about the future of Windows and really stands out as leading candidate for a significant new OS "feature." Nothing is set in stone right now, and Fathi clearly implies that going hypervisor is just one option. What could Microsoft hope to gain by bringing this level of virtualization to the desktop?
OS-level virtualization such as that found with Virtual PC or Parallels for OS X is great for allowing users to run other operating systems or setup development environments. Virtualization applications effectively keep those guest operating systems in a sandbox, making it impossible for them to damage the host OS. Also great, you can abuse a guest OS and yet it is as good as new the next time you want to run it.
OS-level virtualization solutions aren't perfect, though. Performance for certain kinds of tasks is lacking, especially with accelerated graphics and intensive I/O such as hard disk use. This is why solutions that run on top of an OS are losing the server virtualization war: better performance can be had by virtualizing the hardware directly, rather than the host OS's resources.