Yeah, but the ESX microkernel has always been in the 24-32 meg range.

So what you're saying is that they strip out all the management crud of the redhat/apache layer and stuck it on a chip.

Microsoft are trying hard with Virtual Server, but what are the chances that they could ever produce program that weighs in at 32mb?

This is all following a pattern repeated 30 years or so ago. Mainframe virtualisation started off purely in software with VM, which was a bootable hyperviser. In subsequent years, accelerators were added to perform common functions in microcode to aid efficieny. At the same time pure microcode hypervisers started to be implemented, albeit with less functionality. Finally the hyperviser facility ended up as a standard part of the hardware offering. The combination of virtualisation support in processors and related chipsets plus flash-memory resident hypervisers looks like it will become a standard feature over the next few years. Now it's not obvious what use might be made of such facilities in the consumer arena, but it is possible to imagine a single, central server with a multi-core CPU in a domestic environment running multiple virtual machines for everything such as a media serving, security systems, the kids PC environments and heaven knows what else. Suppliers of function could just deliver complete VMs with embedded operating systems without needing to worry about compatibility with other applications.

So what happened to the mgmt crud?! How are we to manage it now? Some funky client we have to load, web interface?

ESX has always been managed by a funky client or the web interface. Just because it's shrunk to 32Mb doesn't mean it won't have a web interface.

What remarkable about this is it's one of the (very) few occasions wehere a new version of software will be significantly SMALLER than the predecessor.

For my money, Microsoft won't be able to match this. Not because they can't, but because they won't WANT to strip out the underlying Windows OS that they get so much money from.

Because, as anyone who uses Microsoft Virtual Server can tell you, is that the host machine really NEEDS media player (and DRM), solitaire, mine sweeper, wordpad, volume controls, a multitude of fonts, etc.