ESXi might be the setup for you. It only has a 50mb hard disk install. All it does is run VMs, but you should check out the compatible hardware list first. We've got it running fine on some IBM Blades and Dell Poweredge 1750 and 1950s. You can't automate snapshots like you can with the expensive licenses, but you can run them whenever you like manually.
Also, its free. Absolutely free.
Give this a shot first and foremost. Just make sure you download the VMWare Converter tool. You can virtualize any physical server with this tool. It's damn sweet, and free as well.