If I had money to spend, I'd use VMware over Xen. Citrix has used XenServer as its backend for XenDesktop for a long time, but as many other companies have done, they're moving away. While Xen is a solid hypervisor, it doesn't cluster as well as VMware. The VMware client and Virtual Center are what sets it apart. Even though it's bloated, requires dot net and windows, the management UI is amazingly stable. I've had hangups over the years, but have been happy since ESX2/3...am currently on 4 and 5 in dual environments.
Hypervisors are only as good as their management tools. They typically have a list of common virtual hardware to fake out the OS and I've seen little problems getting Video/Sound/Processors to work over the years. The more fundamental issues with systems have been time synchronization and memory management. There are fixes for these and the hypervisors have gotten much better. It's just something to always be aware of if you run DBs, auth servers, or anything that requires time to be spot on all the time. ntp or sntp can be setup to resync every 5 minutes....and you can configure the VM hosts as time sources if you want to keep the network traffic self contained.
Xen Server used to have issues with over committing memory. So, a system with 4GB of memory could only provide 4GB collectively to the virtual machines. VMware would allow you to play with resource pools and actually tune the memory so a system running idle wouldn't waste resources if its memory footprint was only 500MB or 1GB, you could give the other 3-3.5GB to other machines, but still configure it to use a maximum of 4GB....then use the hypervisor to set which systems take priority when you have contention of resources. Xen is offering those features now, but it's important to mention that those are the key features of virtualization....stretching hardware to the limits without the end user knowing the difference.
Ultimately, it can drive your hardware costs down significantly, but to do it right, you need shared storage, potentially FC, and redundant network paths....all of which starts adding up over what a few simple servers cost. When you put VMware on a blade chassis, you can really stack a lot of systems in a short amount of rack space. Just be ready to pay up front for the infrastructure. I've seen an entire datacenter shrunk down to 2 racks. (blades + condensed SAN and backup library + network)
If you're just doing testing, consider Microsoft's hypervisor and Oracle VirtualBox.....
I use Virtualbox on my linux desktop to sandbox Windows 7. (I used to run it the other way around and M$ lost its privileges due to bad security)
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