Agreeded, I do near 100% of my development in a VM (Vmware specifically).
Of course, like Devils, I'm sitting on a 3GHz Dual Core w/ 4 GB of ram.
HD speed obviously has a part in perf but I run ALL of my images off of a USB2 connected Maxtor external HD for portability. You just can't beat taking your work home and getting to use the exactly same dev environment. Even being external my images run perfectly.
IMO, there's nothing like development in a VM, especially if you do contract work. Build a VM, write your code, then deliver. New project, new VM. You never have to worry about your development environment changing. You can always go back to the image you
last built the code on and everything will be exactly as you left it. It's the only way to code.