We're thinking of running our TFS 2010 application tier on a virtual machine using VMWare.
We are a tiny shop (4 devs) and like the ability to upsize the power later. Data would probably reside on a real server.
Hive mind: Please, tell me if this is a moronic idea.
I'm not sure what the Microsoft recommendation is going to be here (although, I'm sure they'd suggest Hyper-V over VMWare at the very least).
That being said, I run TFS2010 in a lab environment with both TFS 2010 and the database within a VirtualPC instance (under Windows Server 2003). It works, and for the type of work that I'm doing, it works pretty well.
Given what you're asking, I think a VM for the application tier should be fine. I'm generally not a fan of virtualizing database servers, so I would stick with a separate machine that can be used for your data tier.
If you do wind up virtualizing the data tier, I would still strongly recommend tying it to a physical disk instead of a virtual HD.
Just do it, data and everything.
For low-performance stuff, I even run [OMG] Oracle on VMs.
Our development shop actually runs TFS 2010 on a VMWare. Database and everything. So far we have not encountered any problems, though I have read that it is possible to have some problems with SQL server on a VM. However, this is not our long term solution as well. This was done so we could get up and running without delay. As long as you are backing up your data I think this is a good short term solution.