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Thanks a lot for all the feedback everyone.
Regarding epping's question - how did we measure performance? We measured the performance of 4 web-applications each running as a Windows 2000 Server guest. We used a web client test tool which measures the time required by the servers to process a set of requests generated by the client. It should provide a very objective measurement of the performance of the servers.
Anyway, it seems like we must have had some problem with our specific configuration. We installed VI3 onto the brand-new Dell 1950 and used VMWare converter to move over 4 VMs from VMWare Server and then carried out the performance tests.
We are committed VMWare fans, so based on the feedback received here, we'll go back and try again. This time we'll try new VMs created directly on ESX and see if maybe the conversion process caused the problems.