You mean what virtual machine platform, or how to configure the server? For
the former, I'm a big fan of Hyper-V. For the latter... well, I'd suggest
getting as close as possible to your production configuration  if you want
the test  environment to have any practical meaning.

www.microsoft.com/.../details.aspx\
-74a74bd604fa&displaylang=en

A time limited evaluation VHD containing Windows SharePoint Services 3.0 SP1,
Visual Studio 2008 and the Visual Studio 2008 extensions for Windows SharePoint
Services 3.0, v1.1 for use with Virtual PC or Virtual Server.

I've been using virtual pc for years for this. However, with the move to a
64-bit platform upcoming I would suggest taking the plunge and buying VMWare
Workstation as it does support 64-bit guest operating systems. Something that
virtual pc does not do and likely will not do.

If you have the hardware and software required to run Hyper-V that would also be
a viable platform. I have the software (Windows Server 2008) unfortunately my
hardware doesn't support it.

All that being said make sure you have lots of memory and you'll be fine
whichever route you go. My current virtual pc environment  weighs in at around 23
GB and runs pretty well on my desktop (Dell Optiplex 755, Windows XP Pro 64-bit,
8GB RAM) Running the following apps:

Server 2003 Standard SP2
Active Directory
MOSS 2007 SP2
SQL 2005 SP3
Visual Studio 2005
Visual Studio 2008
SharePoint Designer
Office 2007 SP2

The server is a domain controller which can present some problems if you're
using this in a corporate environment. I just disable the network adapter in
virtual pc so my operations guys don't start freaking out when I bring it
online.