OS Virtualization is very similar to Virtual x86 Mode - you can open multiple DOS (real-mode) windows on your machine, and each thinks it's a real DOS machine, when it's actually a real-mode (DOS) container, and the OS is intercepting the DOS windows directly poking at the hardware so they don't collide with each other.
Virtualizing the operating system, in this case, both Windows and Linux, involves inserting a layer of code (the "Hypervisor") underneath Windows and Linux that puts the two operating systems in modularized containers ("virtual machines"). The Hypervisor intercepts the calls they make to the physical hardware, moves memory around, tickles the clock, and re translates the hardware calls so the OSes don't collide with each other.
Every time Linux or Windows tries to write to memory, or talk to the graphics or network cards, the Hypervisor intercepts the call and re-translates it so that Windows and Linux both think that they are the only OS talking to the hardware. That's the reason for the slowness you're seeing.
The OS's are subject to the same security vulnerabilities as when they weren't virtualized, but the idea is that they are in separate virtual machine containers, so if one of the OS's is infected, you can just destroy the container, wipe the image, and re-install it.
The real danger is if someone attacks the Hypervisor itself (the underlying virtualization software). There have been several sophisticated Hypervisor attacks that have been demonstrated in the techical press (Google "Blue Pill"), but AFAIK, there have been no widespread attacks in the wild.
Last edited by lazlo; 03-15-2010 at 10:04 AM.
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence."