Recently, MSFT changed its licensing. Basically, if you buy Enterprise Edition fully licensed for the base server, you can run SQL Server on the VMs on that box without having to license SQL for each VM.  Here is an article realting to this story.

http://www.virtualization.info/2007/02/microsoft-unlocks-sql-server-2005.html

Before, each VM had to have its own license, but with Enterprise Edition, this is no longer the case.  If you are using Standard Edition, the old rules still apply. 



Cross-posted from SQLBlog! - http://www.sqlblog.com