I went to the Windows 2003 R2 Launch Event in the Chicagoland area about a month ago, and might be able to fill in with what I heard:
1- The Microsoft Virtualization guy at the event didn't say that VS is now on par with ESX. He did say that they are getting better optimizations and therefore faster virtualization.
2- He also said that VMware's current killer app is indeed VirtualCenter/vMotion. The closest thing that Microsoft can offer right now is the clustering of Microsoft Virtual Servers. This is actually a bit of a hack. From what I saw, you have to have a dedicated shared disk per virtual machine, and they provide a script that you make a clustered resource. When you fail-over a virtual machine from one node to another, in essence this script is hibernating the virtual machine by writing its resident memory out to a file, and then bringing it back up on the other node. Similar, but not nearly the same as vMotion. The test he showed at the event was with if I remember correctly a 512MB virtual machine. A constant ping was going during the fail-over, with a loss of about 4 or 5 pings (so probably downtime in the 10-15 second range). This of course affords something that vMotion itself doesn't do; fails-over virtual machines if a physical node crashes.
3- Lower TCO => This is because with the new licensing coming out, buy one copy of Windows 2003 Enterprise and a copy of Virtual Server Enterprise 2005 (which I think was only like $200 or $250), you can run 4 virtual machines (2003 enterprise or standard with possible downgrade to 2000) FOR FREE. This is obviously Microsoft's attempt to attract customers away from VMware. They then also compared the price of ESX to Windows. In the above scenario (Windows with VS) through virtualization you are saving on the costs of hardware AND the licensing costs of Windows. If you are running ESX you are only saving on hardware costs, as you have to pay for each Windows license. Of course, not long after I attended the launch event and heard this, VMware released VMware Server for free, probably as a counter-attack to Microsoft.
4- Hypervisor-style virtualization to come out when Longhorn comes out. Indeed, Microsoft too will be coming out with a hypervisor style virtualization system when Longhorn comes out. They too will offer a thin layer for virtualization, with a copy of Windows (can't remember if they said it would be stripped down or not) running on top of it to control scheduling, resource management, etc., just like ESX. When this comes out it will make full use of the new featurs of the the AMD and Intel processors for virtualization.
