The Associated Press paraphrased Microsoft's Scott Woodgate as saying "Microsoft considered banning virtualizing Vista entirely, on all versions." Some people have been characterizing it as saying that Microsoft wanted to "remove virtualization from Vista."
There's only one problem with that line of thinking. You can't "remove virtualization" from the operating system. With the exception of Xen and Viridian, virtualization is a function of add-on software that sits on top of an operating system, not inside it. Virtualization is enabled through emulating a hardware platform through software. Some virtualization platforms add special drivers that can give virtual hardware access to physical hardware. But with Microsoft's current technology, the hardware emulation platform cannot run on "bare iron", or Ring 0 of the kernel.
Now, with Xen and Viridian, all that changes. That's because both sit between the hardware and the kernel, in a place some people call "Ring -1." Every installation on top of Viridian is a virtual one, even the primary operating system.
Having said that, Vista is aware of when it's running in a virtualized environment, and can make optimizations when it does so. Conversely, they could have put in technological barriers that would prevent Vista from running in a virtualized environment, but they haven't even done that. The only virtualization limitation in Vista Home Basic or Home Premium is a legal one. (That's not to say it's not important, I'm just saying that MS didn't go to extreme lengths to enforce the EULA, nor am I advocating that anyone break their EULA). I know this for a fact, because I just installed Windows Vista Home Basic on my Windows Vista Ultimate machine, and it runs just fine. I'll be trying to install Virtual PC 2007 on Home Premium tomorrow evening to make sure It will work there too... I'll report the results then.
Besides that, why is the fact that they considered banning it in the EULA news? They didn't do it, so who cares? I've considered what my legs would look like if I replaced my feet with roller blades, it doesn't mean I've done it.
Anyway, just wanted to clear that up.