We used to offer a line of VPS's at PowerDNN, and they were very popular.  The problem was we had some problems with stability.  The customers would usually try to max out the density of the VPS and it would make the actual virtual node itself unstable.  Just recently we have been revisiting virtualization, thinking that maybe we adopted the technology for production a little prematurely before.  We did a 2 month study this summer where we brought in a 3rd party consultant that specializes in virtualization to work along side our AtomicSLA team to do a full assessment/analysis of hosting for DotNetNuke in virtual environements.  

The findings were interesting, but in a nutshell, consolidation and costs savings is limited by a combination of disk and memory I/O limits.  The disk I/O is really the main problem as this had a largest impact in performance base on our findings.  The part I thought was funny is that this company really wanted to sell us hardware as well as the software to offer a line of VPS's but when the analysis came back they had never seen disk I/O like that.  Virtualization, in it's current form (VMWare, Hyper-V), is really meant for the enterprise environment and not a hosting environment.  

I guess in short if your are planning on hosting a decent number of DNN sites, and reliability is going to be important, a VPS might not be the best solution.