I am a huge fan of virtualization and specifically VMWare. VMWare has a geek factor that is unrivaled by pretty well any other technology. It is also remarkably practical for consolidation efforts, gaining efficiencies in hardware use and flexibility of resourcing.

One area that is ripe for using virtualization is in securing systems. Now, virtualization by itself is not going to solve any of your security concerns. What it will do is allow you more flexibility with a limited budget. 

Let's say that you want to host a web application. You know that you should be segregating roles and putting different pieces on different servers but your budget won't allow for it. In comes virtualization. Use the same hardware, install multiple operating systems and segment each. You've solved your problem. 

This isn't to say that several virtual operating systems on one server are equivalent to separate hardware platforms physically separated. It does, however, get you much closer to that ideal architecture that you want. 

The additional risks of virtualization are the vulnerabilities within the host server itself. Make sure that you follow the VMWare security releases and newsgroups, patch appropriately and you'll probably be OK.