There always seems to be a debate between physical servers and VMWare, with VMWare typically getting the shaft in these forums. It really depends on your setup (networking, storage, servers) and how they are configured. In addition, its just as important as to how you've configured your software to work with Moodle. Give me the fastest physical server you have and I can make it run as slow as a 5yr old laptop by using some bad tuning parameters. Today its just as much about software as it is about hardware.
I do agree that you will most likely get the absolute fastest setup by using physical servers (disk, cpu, ram, network must be sufficient) if tuned appropriately. I'm not a huge fan of VMWare but you can lose out to a lot of other benefits by ignoring some of the enhancements VMWare can get you. What was true about VMWare and physical servers back when this thread was started is most likely not relevant today.
My advice is to use the setup that makes the most sense for your environment by weighing the pros and cons of the entire architecture and your budget.