Why not for production machines?
Virtualization provides all kinds of benefits and it will - of course - depend on your specific situation. IMO on of the main benefits is making the (guest) OS independent from the hardware it runs on. The physical machine dies and cannot easily be repaired? No problem, just take a completely different server and run it there without much hassle. Things like resource scheduling, power management, high availability and fault tolerance may be important in your choice of virtual or physical. In some cases it may be necessary to combine both, YMMV.
One of the big negatives is that people think they can simply keep on adding servers left and right, creating a management and licensing nightmare.