http://www.microsoft.com/windowsserversystem/virtualserver/default.mspx
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Virtual Server 2005 R2: Now Available as a Free Download
Learn how you can use Virtual Server 2005 R2, now available as a free download, to increase hardware utilization and enable faster deployments of new servers.
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Microsoft Announces New Price, and Availability of Linux Support, for Virtual Server 2005 R2
April 3, 2006: Today Microsoft announced that Virtual Server 2005 R2 is now available as a free download. Microsoft also announced the availability of virtual machine add-ins for Linux and a technical product support model for Linux guest operating systems running on Virtual Server 2005 R2.
Clearly MS will still make money on the OS licences you run under it, but they changed their licencing recently so that one licence can be run in up to 4 VMs