I much prefer using the free VMware server for development and testing different OS versions. It's far more difficult to screw the pooch using virtual machines, and one can always make snapshots before upgrades or major changes making it easy to undo the changes and try again. I find this invaluable when testing major software installations.
Yes, this seems like a case where virtualisation is a good solution. I've only just started learning to run Xen myself, but the advantages of virtualisation over dual/triple booting etc are pretty clear. As well as the ones you mention, different machines can also be run concurrently and networked.
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