Requirements
Yes bios updates will fail, servers can catch fire, backups could be destroyed and managers will make stupid decisions, have an organizational process that deals with such situations!
But first, "the server layer" is quite vague IMHO. Does it mean hardware? Or hardware + OS? Or hardware +OS + Apps (i.e. a webserver)? It's hard to draw a line these days were commodity stops and the specific application begins.
The trouble however is not the hardware or the OS or even webservers and software frameworks. Problems start much earlier, namely at specifying the required functionality of an IT system/solution by a business.
Contrary to popular believe, in some cases requirements can't be captured by a static list of demands. They are continuously changing. Customer requirements captured at any given time are therefore seldom correct and have an expiration date. This is at the heart of the problem and why IT never "just works", since the measurement of IT's success is a moving target.
Software products are never complete, since requirements and expectations keep changing. Unless your products and/or customers needs (and therefore IT requirements) never change, the solution seems to be (at least to me at the moment) rapid, iterative development of functionality. The company/department that has an organizational process that can deal with these changes has a better chance of satisfying requirements.
I can imagine that decoupling the functionality (i.e. software) from the hardware is a relieve. So maybe virtualization is not that bad a marketing fad. Iff it makes sure software can change without having to deal with hardware restrictions and hardware can change without a need to change the software. The two opposing forces just might establish an equilibrium.
In the mean time, I think it's wise to try and apply the same decoupling principle. Have play yards where application developers can play on their own development servers and when it's time for a release, plan a meeting with the two opposing forces and design the production environment together. But it doesn't hurt to keep in mind what the capabilities are of your "server layer" (and maintenance thereof) when playing in the play yard ;)