First, we will need a dual CPU setup with the Intel-VT or AMD-V architecture extensions, lots of RAM, and SCSI drives under RAID. As you really do need a dual cpu setup to run these solutions.

The top two choices for a Virtualization Solution (aside from VMware) that supports Windows as a guest OS are…

• Virtuozzo
  A true VPS solution with operating system-level virtualization. Provides multiple Virtual Environments (VE), that multiplex between one main Kernel. Lowest-overhead, fastest-performing solution. Can probably manage 100 linux-based VE/VPS instances on a Server; 3 times the number compared to other solutions.

  Cost is an issue… $1000 per socket [physical CPU]

  You will need to license their management tools. Good luck trying to figure out what you do need, and the difference between these two [I think the later is a web-based interface to the former?]…

  Management Console VZMC (GUI based)
  Single Server License $200 per seat.
  Unlimited server license $1000 per seat

  Control Center VZCC (web-based management)
  Single Server License $300 per seat

  Support will also run you $400+.

  The end-user will need the Virtuozzo Power Panel (VZPP).

• XenServer
  A paravirtualization solution that has the industry’s support and backing. Modifies the guest OS [or makes use of the mentioned cpu extensions] to cooperate in the virtualization process.

  Cost, for 2 sockets, per year…
  XenServer $99 [licensed to run 8 virtual machines on each system]
  XenEnterprise $488 [has no limit, maybe could handle 30 linux-based VPS instances]

  A number of third-party tools are available.

Lets note that the above products can only handle 2-3 times less the number of Windows-based instances [just a guess on my part].

Lets look into the licensing costs/issues of a setup like this…

Virtual Machine Technology FAQ

Each copy of Microsoft Windows Server, whether used as the OS for a virtual machine (“guest OS”) or as the OS for the server (“host OS”), must be separately licensed. For example, if a user is running Windows Server 2003 Enterprise Edition as a host OS on a server and creates two virtual machines, each with its own copy of Windows 2000 Server (each a guest OS), the user would require one Windows Server 2003 Enterprise Edition license and two Windows 2000 Server licenses.

Licensing does not depend on which virtualization technology is used. With a license for Windows Server 2003 R2, Enterprise Edition, you can run one instance of the software in a physical operating system environment and up to four instances in virtual operating system environments.

The MSRP on Windows Server 2003 R2 is $999 for the Standard Edition, and $3999 for the Enterprise Edition. So for 1 host and 40 max win32 guests, that would cost us $25,000 (~60% of retail). There is one problem with this… Microsoft can’t make up its mind on whether the License ties into the device or the end-user, and who exactly the licensee is. In this VH context, this might break a few clauses.

Luckily, Microsoft does have the Service Provider License Agreement (SPLA) which would allow us to lease the OS on a month to month basis for hosting. Its pay as you go, so if we only have 1 customer, we are paying for 1 license and for 1 month. While I cannot locate a pricing list, it is my understanding that the cost is usually at 3% of the perpetual price (retail, or average?).

Lets add another $5000 for the cost of renting the server and another $5000 that Virtuozzo will extort in licensing fees (for 40 users) [both for one year].

At this point, assuming 12 months and 40 accounts, we are in for $25,000. To break even, we would have to charge $50 per month. Which is still about $20 more than what you could charge for a Linux VPS. And at those prices we would be working for free. For one person to do this, and make a living, well, you would need lots of paying customers and farm of servers. Hosting is a cutthroat business.

More info on the subject…

• Wikipedia entry on Virtualization
• An overview of virtualization methods, architectures, and implementations.
• blog.virtuozzo.com

There are also other noteworthy solutions like VMware (full virtualization) and Virtual Iron (based on Xen, except with Native Virtualization).

VMware has some really great things going for it, like ease of use, and their appliance initiative.

Spry seems to offer a dedicated server with Virtuozzo already setup, with 100 VE/VPS licenses — Linux as host/guest OS.