Hi there
Using a server as a desktop needs a few changes to use it comfortably. For starters you can get rid of all the notifications when starting / stopping a server as these are usually designed for corporate operations.
I suggest you look at this so the OS will behave like a desktop OS while still of course retaining all the server functionality :
Convert your Windows Server 2008 to a Workstation!
BTW slightly OT but if you want also to enable Windows XP / VISTA "Classic" games on W2008 Server here's how to do it
http://www.win2008workstation.com/forum/viewtopic.php?p=7750#p7750
(You need either a VISTA or an XP install CD to extract some files).
Now I wouldn't waste my time with Virtual PC -- install vmware VMPLAYER (free) or VMWARE SERVER (also free) -- the advantage with VMWARE SERVER is that you can have the VM's running in the background and a user can log on to a VM WITHOUT having to have an account on the Host machine.
Virtual Box is also free -- however I'm used to vmware products and they work just fine.
I'd recommend going the VMWARE SERVER route -- it's slightly (but ever so slightly) more complicated to get guest OS'es up and running but the overhead is less and you DON'T HAVE TO SHUT THE VM'S DOWN when you log off the Host machine. The VM's can also be started automatically on boot as well without any user being logged to the host machine on so they are accessible to authorized users remotely too -- great for Web site testing etc.
Both VMWARE and VBOX support Non MS Guest machines too -- Virtual PC will work with these too in some cases but MS officially only supports Windows guests on Virtual PC.
As the previous poster said you could use HYPER-V but in this case IMO it's way over the top for what I think you need -- a Windows 7 Virtual machine running under "Classical VM software" like a desktop IMO is the best and easiest way.
Cheers
jimbo