Ever since the launch over a year ago we used VMware Server 1 for instantiating the YippieMove back-end software.
This says it all in one sentence. VMWare Server (as opposed to ESX or ESXi) is a dog. It barely ran with two WinXP installs and one RHEL5 on a 4-core server with 8 GB of RAM. Life was a little better after upgrading to VMWare Server 2, but running it on top of an OS instead of using a hypervisor kills performance. I switched the same box over to ESXi 3.5 and all three installs scream. Additionally, the memory page deduplication driver means that I have capacity for probably another five to seven lightly loaded systems without worrying about the occasional load spike.
As far as some jobs just not being well suited to virtualization, that's an obvious truth. However, most work in that class is CPU bound compute work. If you are not buying storage on a shoestring budget (i.e. you can run VMFS3 on a FC or trunked Gb SAN rather than fiddle with NFS) then you should have reasonable IO performance. The OP doesn't give any detail on storage performance (either in bandwidth or IOPS) so there's no way to tell what it requires. Having looked at his YippieMove service web page there doesn't seem to be a lot that is required. It seems like they picked the low performance, free VMWare tool and when it didn't work did something completely different. This says less about VMWare than it does about the OP's design/testing process.
To write good code is a worthy challenge, and a source of civilized delight. -- stolen and paraphrased from William Safire