To use the virtualization stuff built into the hardware you need a hypervisor to manage all of it.
Vmware produces hypervisor for some of it's products. Xen is a Free software hypervisor that has the support of Intel and AMD among othe industry leaders.
Microsoft doesn't have a hypervisor yet. Although they probably will have one optionally with their 'Longhorn Server' edition.
Otherwise you can run a virtual machine as a application. Vmware workstation and Microsoft virtual server all do things like that. These are things that just run as a application inside the host operating system. Aren't hypervisors so much.
As far as what OS to use.. Vmware ESX stuff should do it. It's widely used in enterprise right now and has some very good management tools. But my Bet is on Xen/Linux.(because it's Free software and it's no-cost) Linux kernel will eventually have facilities combined with newer PCI card specifications that will allow client operating systems direct access to the hardware. Right now it has limited things to allow file system access and such. Not sure of the details, but is one of the reasons why Xen/Linux (and Vmware stuff on Linux) is fast at virtuliation.
It'll take a few more years before you get all new hardware using new PCI specifications to allow more direct hardware access.. (so you can run your games in Windows with 3d acceleration while your main system uses OS X or Linux, for example). Again I don't know all the details.
Right now it's good for running normal applications and server stuff. (For example say you wanted to run Ubuntu all the time, but still be able to access Windows stuff for running Microsoft Office or Dreamweaver or whatnot.. You would run Ubuntu on top of Xen then run Windows in a unprivilaged level and access windows desktop via rdesktop for those applications. It would run at near hardware speeds. Within 90-95% of native hardware)