Since no one answered I take a go, though I can only contribute more questions.
> I have Moodle Setup on Windows Server 2008.
> Unfortunately, I am not able to use Performance Testing tool in Windows Server 2008.
Why? There are definitely many virtualization technologies available for Windows 2008.
Wait, are you planning to do this on the same Windows 2008 Server where Moodle runs? That would be a bad idea, the testing tools: the VM host
and all the guests within, will burden the server so much, that you are testing a crippled machine!
> The suggestion I got is to setup a Virtual Machine with Windows Server 2003 (Performance Testing tool works on this) and collect the performance results.
I you master Windows Server 2003, then take it. But not on the same hardware.
> Is it advisable to use VM for Performance Testing?
You are free to use a virtualization, as long as they don't pull the brake in your Moodle server!