Microsoft Knowledge Base Article 888794 contains the following summary:

A virtual hosting environment lets you run multiple operating systems on a single computer at the same time. Host software virtualizes resources that include the following:

Local devices

By virtualizing these resources on a physical computer, host software lets you deploy test operating systems, development environments, and programs on fewer physical computers. However, a domain controller that runs in a virtual hosting environment has restrictions that a domain controller that runs on a physical computer does not have.

This article discusses the considerations when a Microsoft Windows 2000 Server-based domain controller or a Microsoft Windows Server 2003-based domain controller runs in a virtual hosting environment. Virtual hosting environments include the following, among others:

Microsoft Virtual PC
Microsoft Virtual Server 2005
EMC VMware