Yes School District 73 uses virtual machines - on diskless clients. The clients behave exactly the same as fat clients except / and /home are mounted over the network (nfs). We even get some speed improvements due to nfs caching the files the diskless clients need in RAM reducing disk-io/seek-time type on the client machines. We can run vmplayer or virtualbox on the diskless client to give access to additinal virtual machines on the thin client. Anything you do on the server is immediately available on the diskless clients. Full-system off-site backup for every computer in the school is a snap with diskless clients. Diskless also provides 3d acceleration, audio/video viewing/editing etc. Our largest school is running 280 diskless clients off of one server. Students & staff also have FreeNX access to their desktops from any web browser anywhere.

The sd73 website notes that they are using diskless technology, not so much terminal server technology:
sd73.bc.ca