Hi sowdesh,
I'm also using one VGA card (ati 5450) for both ESX server as well as a VMDP device.
My ESX 4.1 server is running on an Asus whitebox mobo (P6X58D-E) and the guest OS with the VGA assigned as VMDP is a windows 7 64 bit machine.
I have also tried with windows XP and windows 7 32 bit and is working there too. I am just limited to 2GB vRam allways.
So anyways back to your problem, I think that what you describe is normal up to a point.
In the beginning when i initially configured my video for passthrough I too noticed that as soon as i powered on the VM which has the passthrough video assigned, the ESX server's console went blank.
Back to my VI console I went to the screen resolution settings and first i had to select "extend these displays" and then "show desktop only on 2" which is the VMDP display as it seems that the vmware adapter is still the primary one.
After that everytime i power on this VM the ESX console is redirecting to the VMDP display and the VI console just shows the win7 boot logo but this is fine as everything is being displayed directly to my monitor and this is so cool actually.
Makes the VM feel like a native machine.
So try to hit detect under screen settings and then choose "extend displays" hit apply and then "show only on 2" and apply again.
If nothing happens there then I can't really know what could be wrong with your setup.
You will also need to VMDP a usb controller too so as to have native imput on your VM.
