A lot of people confused about Virtualization license. Let me explain in more detail to help you understand more so you would not illegally use the Microsoft Licensing.
a) VMWARE - you need to buy each Microsoft operating system license for each VM.
b) Windows Server 2008 Std edition - free running 1 instance of Standard Edition os on the VM.
c) Windows Server 2008 Ent edition - free running 4 instance of either Std or Ent Edition os on the VM.
d) Windows Server 2008 Datacenter edition - unlimited instance. (License is calculated based on per processor)
e) Microsoft Hyper V - the system is free but you need to buy license for each guest. Similar as VMWARE.
There is a term and condition for option b and c.
"The condition is you cannot run any application or roles on the parent partition."
For example: If you install Web services on the Windows Server 2008 Std Edition, you will lose the benefit of running free 1 instance of the VM.
If on Windows Server 2008 Ent edition and you run Web services on top of parent partition, you will lose 1 free instance. That's mean you will only get 3 free instance of VM instead of 4.
Anyway as a good practice in virtualization, you should not run any application on the parent partition.
So plan well before you decide on virtualization...
