This doesn't make sense.
Must've been something in the sushi at the last josstick lunch with the whalesong dynamics guys, eh Chris?
Personally, I think that commodity x86 is indeed crap and just about unsuitable for serving anything, just as windows is. This becomes more of a pain if you try to run the things, as you need all sorts of extras like (IP)KVMs or basically the same thing in a plug-in card, possibly with fancy web interface for doing lots of things that you'd be better off having access to over a serial interface. Like, oh, bios settings, an nvram manipulation tool, the boot-up flexibility you get with openboot but not so much from any pc bios, that sort of thing. Virtualisation "fixes" this not by giving you access but by making the need for it go away, except in those cases where you still need to manipulate the actual hardware. The performance overhead is probably an added bonus for hardware vendors, but not so much for the end user.
Unix, OTOH, has quite a bit of history catering to lots of people doing lots of things at the same time. This just happens to mesh reasonably well with running lots of serving processes at the same time. Virtualisation in that use is much more useful for windows because windows lacks many of the process, user, and other separation mechanisms. The drawback is that you now need even more interfaces and software layers (possibly^Wmore than likely fancied up with GUIs and web interfaces) to merely manage the resulting stack. Just hope all those bits stuck in there are rock solid, eh.
I don't know if flash, with its limited write cycles, makes more sense as a cache than say a large bank of cheap-ish and slow-ish memory, possibly with battery backup. In the end, though, one might just find that the architecture is where the bottlenecks spring from, at which point multiple i/o channels and all that come back in the picture, and you're back to mainframes. Though as long as a simple pull of the wallet will command stacks and stacks of x86 servers to easily throw at the problem, nobody really needs to do anything fancy.
In that respect, commodity hardware is much like xml, or violence. If it doesn't solve the problem, you're not using enough of it. Perhaps the same is true of virtualisation.