Basic hypervisors, the software that allows one server to be partitioned into multiple virtual machines, are free, but that does not mean virtualization is free. Microsoft Windows 2008, for example, still needs to be licensed. Of the various license classes for Windows Server, Datacenter Edition is the most flexible and cost effective.
Windows 2008 Virtual Licensing
Microsoft built its software empire upon licensing operating system software for each PC and server on which they run. Virtualization disrupts this one to one relationship by making it possible to run multiple virtual machines per physical machine; each virtual machine (VM) has its own operating system.