"However, he claimed that the real benefit of the virtual approach is not cost, but reliability and provisioning speed - customers will even be able to buy VMs online."
I've been buying hardware servers online for the last 8 years. You pay your money, you get sent a link to the admin login. How is this revolutionary ? And you get a performance hit - wow, sign me up.
10 customers can't be wrong !
If they were providing regular snapshots of each VM as part of the package, and giving you the option to restore to a particular machine state, then that may be useful, but I would still prefer a server to be running natively. Also, unless you have the VM backed up to a different machine, then it's no backup at all.