In my experience with VM server and ESX, it is much better to put each VM Client on a separate disk or raid set rather than partition if at all possible.
while using only one disk it is advantageous to keep your vm clients on a separate partition in case you need to rebuild the host, but performance wise there is no benefit.
Each VM Client will want to read and write to it's own disk (a flat file on your main HDD) this will happen as and when your disk has available read/writes, the more systems you have running the more reads and writes are requested of the disk, meaning that each system has to wait longer for each request to be processed and written to disk.
Disk I/O is almost always the bottle neck on home built VM setups.
If it's only for testing and playing around it's perfectly fine, but in a production environment, i'd try to stump up for some more disks.
Thanks for the input filfish. Do you mean add another RAID controller?
Unfortunately the server we're using only has one raid controller setup as RAID 10.