With VSphere, VMware has announced a dramatic expansion in the definition of a hypervisor, renaming it to be a Data Center OS, and providing a whole host of new services around the Data Center OS. It is very clear from both the vision and the items that were announced that VMware is serious about producing an OS that slides underneath at the minimum all existing operating systems on X86 platforms in the data center, and that once this beachead is established will climb upward in the stack, squeezing the value of existing OS vendors like Microsoft and Red Hat.
Here is a nice summary picture of what is new in VSphere
The improvements basically fall into three categories; 1) improvements in hardware interaces and scalability, 2) improvements in manageability, and 3) a new and compelling focus upon virtualizing business critical applicatons with vApp - along with a promised mechanism to actually guarantee their perforamnce in terms that applications owners will buy into.
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