Always use virtualization unless you have a compelling reason not to, use different virtualization products for different purposes, and expect virtualization products to change.
Server virtualization reduces cost by reducing the number of physical servers that must be bought and run. It reduces risk by allowing different processes to be run separately, reducing the knock-on effect of errors. It provides flexibility by removing the dependency between the operating system and the physical hardware, allowing systems to grow, shrink or move without changing hardware. It helps align technical infrastructure more closely with business needs.
There are three main virtualization approaches.
Although it is still developing rapidly, virtualization is valuable, viable and mainstream today. Organisations will benefit from having an effective virtualization policy.
Rather than having a policy which defines when server virtualization should be used, have a policy that assumes virtualization will be used unless requirements dictate otherwise. There are cost, risk and flexibility benefits in most situations. In the rare situations where there are few cost and risk benefits, such as replicated application servers, the flexibility benefits still apply.
If you are using paid-for operating systems such as Windows, consider the licensing implications of virtualization. Linux may be a more cost-effective option for virtualization.
Investigate, select and implement a small number of virtualization products. Different virtualization approaches are good for different needs. Native hypervisors are probably the best approach for general production use where guaranteed performance is important. Hosted hypervisors are useful for testing and special situations. OS-level virtualization is a more specialised approach for consolidating a large number of similar servers.
When selecting products, evaluate them against their intended use, not just ease of implementation. The products that provide the best range of options for production use may be more difficult to implement than simpler products.
It is hard to make specific product recommendations. I suggest:
Expect virtualization technology to change. Over the next few years, virtualization of servers, data storage and networks will mature into a more complete "virtual data center", with added-value activities such as automatic replication, recovery and resizing. This is not a reason to delay use of virtualization today, but a good reason to keep up-to-date with the technology as it matures.