All of our servers at my university run VMs, being cheap FTW.
I dunno that I'd call it being cheap. More like being reasonable.
One thing is that ESX itself is expensive. They could be using HyperV, which is cheaper by most accounts.
I dunno, since migrating half of my work environment to virtual, I'd have to say the difference to the end user is minimal, while the management difference has improved a great deal.
Thing is, at any given time, one dept has a need for this, that, or the other. So you produce a quote to purchase a physical server, buy it at about 10k or more in some cases, and then get to work on installing whatever app they've purchased. Then, 3 months later, they find out that the software doesn't do what they want it to or thought that it would do. So now you're stuck with a 10k dollar server that most IT managers would shy away from re-purposing for something else due to life cycle management and those types of things.
With a VM, you already have your hardware. And you can simply make a backup of it and remove it from production if they ever decide to revisit it. VMs make life very, very easy. And by most accounts, the performance is 95% of the original hardware's performance so long as you don't over utilize the server.
And, in my environment, when you have a dual hex-core server with 64gb of RAM running 15 or so VMs at about 2-4GB a pop, performance tends to be very little of an issue as most of those VMs consume very few CPU cycles.