My experience is with Oracle but I imagine it would be similar to SQL server. I found Oracle on Vmware ESX to be sensibly slower than real metal, in particular memory and disk access. Of course I imagine that if you replace an old, dying server with a more powerful virtual server (in terms of number of cpus and amount of memory) perhaps the change will be for the best. Anyway, make sure to let management and users know ahead of time that the performance of a virtual environment may be lower than that of physical hardware but that it would be only temporary until the real server is fixed. And get it in print and signed. CYA, basically.