Update: Please read this review about VMware's free P2V solution, VMware Converter 3.0 and check out my first impressions about VMware Converter 3.0 final.
We are currently setting up a new VMware server and want to migrate several physical Windows servers to virtual machines. So far, I know six different ways doing this.
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1. VMware P2V Assistant
VMware offers a tool for this purpose. The only problem with this option is that the VMware P2V Assistant is quite expensive. Prices start at about $2,500 for the VMware P2V Assistant Starter Edition which allows 25 migrations. The VMware P2V Assistant Enterprise Edition costs more than $6,100.
2. PlateSpin PowerConvert
Platespin PowerConvert seems to be a more sophisticated tool since it allows any kind of conversion. It not only supports VMware but also Microsoft's format. Prices start at 2,619 Euro.
3. Ultimate-P2V plug-in for BartPE
BartPE helps you to boot Windows XP/2003 from CD-ROM. It is similar to Microsoft's Windows Preinstallation Environment. Ultimate-P2V, a plug-in for BartPE, allows you to clone a physical machine to a virtual machine. BartPE and Ultimate-P2V are free, but you need a cloning tool like Symantec's Ghost which is not free. Compared to solution 1 and 2, it is much cheaper though. I didn't try Ultimate-P2V. At first glance, this option seems to be only for advanced system administrators.
4. Use a cloning tool with boot CD
This option is quite similar to 3, however, you need a cloning tool that supports creating boot CDs, where you can store the image. Using an imaging solution means that you have to exchange the HAL with one that suits the new "hardware" environment. This site has a detailed description.
5. Microsoft's Virtual Server 2005 Migration Toolkit
The Microsoft Virtual Server 2005 Migration Toolkit is free, but it only helps you to convert physical machines to Microsoft's virtual machine format. However, you can import this format in VMware Server or VMware Workstation. The problem with this solution is that the Migration toolkit requires Windows Server 2003 Automated Deployment Services (ADS), although for free, only runs on Windows Server 2003 Enterprise Edition. The whole procedure to migrate a physical server to a virtual machine is quite complicated. Check out this white paper to learn how it works.
6. Install a new virtual server and restore a backup
If you only have a few physical servers that you want to convert to virtual machines then this might be the fastest way. Of course, you don't have to install Windows for every new virtual machine. If you have VMware Workstation you can clone them and if you only have VMware Server you can just copy the folder containing the virtual machine of your master server. Don't forget to run sysprep afterwards to get a unique Windows Server, then restore a backup of the physical server to the new virtual machine. Don't restore the hardware specific settings of your physical server.