I was speaking to Pertti from Finland earlier today about a common problem people are finding with Windows Server 2003 SP1 running under Virtual Server 2005. Coincidentally, I also had two people ask me also exactly the same thing today following my Virtual Server presentation yesterday at the latest leg of the Technet roadshow in Birminham which finished today - for those of you reading this who were present, I hope you found the content useful and helpful.
If you attempt to run Windows Server 2003 SP1 under the RTM version of Virtual Server, or apply the service pack to an existing VM, you will find that the performance of your VM wil suffer significantly. This is because (as per my best way of attempting to explain it) that the Virtual Machine additions are optimised according to the way in which the binaries of the operating system being "guested" itself are optimised. Because Virtual Server RTM was released before Windows Server 2003 SP1, this means that the additions are not optimal for SP1 of Windows Server 2003, hence you see a performance drop. There is a solution, however I do want to emphasise that this is, at least today, not supported by Microsoft. The solution is to within the guest run the additions from the SP1 beta of Virtual Server which I blogged about a couple of weeks ago. The information I currently have from the product group is that they intend to release a revised version of the additions which will be supported through a hotfix very shortly. Obviously, this isn't an ideal situation to be in, but is the best I can currently provide for you. If it is any consolation, I have been running the beta of Virtual Server for some time now, along with Windows Server 2003 SP1 as both a guest and a host with absolutely no problem what-so-ever - my pretty extensive testing has found this combination to be rock solid. If this wasn't the case, I wouldn't choose to show the beta code to 200-odd people in my demonstrations.
Hence, stay tuned over the next few days - once the hotfix is available, I'll post the information up here. However, if you can run the "risk" of being in an unsupported configuration, then I would say that you should use the additions from the beta when running Windows Server 2003 SP1 as a guest. The official line on the supported configuration is still that you should run Windows Server 2003 RTM as a guest and not apply SP1 until the hotfix is available. I trust that clarifies the situation today.