VMware didn't respond to MS pricing. They beat them to free. They saw the price war coming and decided they would take away the weapon before MS had a chance to club them over the head and get the marketing machine spun up on their stuff.

This just in: It worked.

Without the profit motive, MS spent dollars in other marketing hype, VMware managed to buy enough time to counter the MS marketing machine and have managed to position themselves as the defacto virtualization platform. Good on 'em for beating MS at their own game.

see http://communities.vmware.com/community/beta/server2.0?view=discussions for some users early takes on this release. It seems VMware in their infinite wisdom has moved to a completely web-based management console. I don't think I'll be moving to v2.x any time soon!

@eddiwrenn - there are some very valid reasons to run VMware virtualization inside an already virtualized guest - such as learning how to use VMware for instance.