to use KVM (or xen with windows guest) you need a processor that is 'capable' of virtualisation (intel VT).I could use an old Fujitsu Celsius (2.8 P4 Hyper threaded, 1gb Ram, 140gb UATA HD) server I have lying around to run both operations.
personally I'd go with option 3 - but with vmware. or check if vmware esxi will be ok with your hardware.



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