I've been using Parallels versions 2/3/4/5 to do exactly this for some years now. @Brian - aside from problems arising from limited memory (I'd say 4GB minimum for this kind of thing) I've yet to encounter any issues. I develop .Net enterprise web apps using Visual Studio on a MacPro and also my 13" MBP) and can't imagine working on anything else in any other way :-)
Re: VMs vs Bootcam - using Bootcamp is an option if you absolutely have to squeeze the last 1-5% performance out of your box, but otherwise the benefit is minimal. Parallels will work with a bootcamp partition but has some drawbacks. For me the biggest pain was that Parallels VMs from a bootcamp part can't be suspended and resumed quickly and easily as ones running off an image file. Also, with image files you can keep a working clone of your VM ready to step in if your windows vm goes down. Its harder to keep a clone of a partition.
You can also give VM clones to colleagues so you're all working on identical environments. If your bootcamp partition goes down [and mine did many times during the Windows 7 beta days :-(] the road back to where you were is long and fraught. A lot of disk checking goes on and the bootloader is involved - can be nasty.
Just try it - you won't regret it. Its worth spending a bit of time setting up your keyboard. Personally I find this works very well with Windows 7: http://parkernet.com/applepro/ (its a mac->windows keyboard layout for Windows).
Hth.