Because I keep telling people the same stuff in different places, here’s what I suggest you do when thinking about converting a physical machine to a virtual machine. I primarily do this in a VMware environment, but most of this is hypervisor vendor-agnostic.
A physical to virtual conversion (P2V) can usually be done whilst the original server is up, and effectively images it “live” over the network to your virtual environment, changing drivers etc. as it does it. Personally I like to stop appropriate services on the server being converted prior to starting the process, e.g. SQL Server, to make sure no data is lost.
The original physical server is effectively untouched by the process (apart from the installation of the converter agent) – so it’s a nice safe process. If the VM doesn’t work properly for any reason – and >90% of the time they’re fine – you still have the original physical server to bring back up and can try again later.
Because the contents of the server is transferred over the network, the more data on the server the longer it takes, so it’s a good idea to tidy up (safely!) first – delete Temporary Internet Files, Temp folder contents, old Windows Update uninstall folders etc.
As part of the process you can resize the disks, and choose which disks to bring over, so if you have a 160GB C drive but only 30GB of data on it you can make the new virtual disk say 45GB, and if you have a 100GB F drive that you’ve never used then just don’t bring it over to virtual. You can expand disks at any time, this is especially easy on Server 2008 R2 even for C drive, but Server 2003 lets you easily expand data drives online too.
Do tweak the hardware before powering on the new virtual machine – remove unnecessary serial ports, floppy drives etc. Change the number of CPUs down to something sensible – if your original server had two dual-core-with-hyperthreading CPUs then VM will be assigned 8 CPUs, which is ridiculous in most scenarios. Probably one or two CPUs is all you need; two or more for most databases, e.g. SQL/Exchange unless fairly light usage. Also uninstall any unnecessary hardware management software such as Dell OpenManage, and you can be really good and remove old devices that are no longer present and thus hidden in Device Manager.
Make sure you have the VMware tools installed (or equivalent), these are the optimised device drivers.
Be aware that, assuming you’re buying new hardware for your hosts, it’ll be somewhat more powerful than the old physical servers were – you might well get performance improvements.