Yes, two pieces of our farm (Index and WFE) are running on MS Virtual Server and
they both work splendidly (SQL is on a physical monster cluster). Granted, they
aren't quite getting pounded yet, but they are in Production, their speed is
very good and they take up far less physical space, energy, etc. They're easier
to manage, administer and monitor, too.
I have worked with MS folks very closely for quite some time and they have seen
several customers using virtual technologies to host the MOSS servers.