How fast is your storage, your performance issue may not be your CPU.
When we first started with vmware, most vm's were not disk i/o intensive, then we tried to virtualize one server that was and it ran like a dog. We ended up doing massive i/o benchmarks and several SAN upgrades to get performance near what physical hardware can give.
if most of the CPU time is privileged mode, then it could be waiting on disk i/o (not paging, but file access). Saw this kind of think with a database once. Turned out processes were waiting for the i/o to complete before moving on.
disk Q length, disk reads/s, disk writes/s, %disk times, all these can really slow you down.
I had to use a tool called iometer and spent a bunch of time to get our system cranked up.
from what you've posted before, if CPU is 50%, and there are low ready times, it doesnt sound like a CPU problem. now you mentioned privileged time and that sounds like your processor is waiting for something. Took me a while to realize, high cpu times may have nothing to do with executing program instructions, but more about running the 'check loop' looking for the information requested from disk and other sources.
