At Alfred we use a virtual machine under VMware. As the webwork administrator I don't work much with the underlying operating system, so I don't have much to offer there in terms of information.
I can say that from the administrative side using a virtual machine is great. If I need to do an update I just take a snapshot first and update without (much) worry, if the update doesn't work out I can always go back to the snapshot. Other than having to negotiate with IT over our virtual memory allotment the system has worked very well.
I should point out that we run a small system: we have less than 200 students on webwork a semester. If you have other questions I could get one of our IT guys to answer them.