I've had a student, Terry Wilcox, working to understand the performance characteristics of VMWare's ESX virtualization monitor. Terry's finished his initial work and written up the tests and some conclusions. Overall, ESX scales quite linearly--that is each new virtual machine gets a fair share of the processor and other resources. There are some interesting conclusions:

• Single CPU virtual machines scale better than virtual machines using Virtual SMP.
• Hyper-Threading increases throughput if there are a large number of virtual CPUs, but makes no difference if the number of virtual CPUs is less than or equal to the number of physical CPUs.
• Do not allocate excessive resources to virtual machines. Additional resources may hurt performance.

If you're interested in the details of how the tests were done and these results, the full report is available (PDF).