Free hypervisor for small configuration

I recently took all three for a spin to run my home network, and the short answer is that it depends on your particular needs. Unless your needs are very specialized (database/Exchange/etc), modern hardware with virtualization support you will run the guests with negligible performance differences. Given that I'd suggest looking at features & price.

VMware: As you're probably aware VMware is the long-standing king of virtualization. It has the biggest list of compatible guest OSs, and has one significant unique feature - memory overcommit (you can allocate more virtual memory than there is physical memory). If your goal is to consolidate a bunch of small, underutilized servers VMware will likely give you more VMs/host than anything else. The caveat is that if you overcommit and the VMs need more resources performance tanks. ESX/ESXi also has the smallest list of compatible hardware. If you are looking at a white-box system, check here first. If you have compatible hardware it's fairly easy to install and use. The free version (ESXi) comes with hardly any features, which is fine if you're looking for a few standalone hosts, and the non-free versions are priced out of this world. On a personal note, I VMware leaves a nasty taste in my mouth - in my mind they are one of the many companies resist change & innovation when the very foundation of their business is challenged by the competition. Recently they asked a partner company to remove their product's support for the free version.

Microsoft: Hyper-V is a very intriguing option, even more with the R2 version. I tested Hyper-V Server, which is the free standalone product. I'm a Microsoft fan, and I really wanted to like Hyper-V, primarily because it can run on practically any hardware that has Windows drivers. If you are running in a domain environment and primarily use Windows, Hyper-V should be at the top of your list. When you have the option to buy/use SCVMM it appears to be an even better value. Unlike VMware, the free version comes with a good feature set and is even better in R2, where clustering & live migration are available! Hyper-V runs Windows guests very well, has a small, but growing, list of supported Linux guests, and even unenlightened Linux guests seem to run reasonably well. The story is different if you aren't in a domain environment as managing the standalone Hyper-V Server is a major pain. Despite all of the goods Microsoft delivered in a v1 product, the management was driving me crazy.

Citrix: The end result of my testing was to go with XenServer 5.5. It has IMHO the best set of features and capabilities of the three free offerings. Like VMware it is installed and managed like an appliance rather than an operating system (like Hyper-V). It also has a much larger list of compatible hardware (and I suspect the ability to add drivers if needed). It offers way more features than VMware's free offering, and if you were to upgrade the free version to the paid version would cost much, much less. Windows guests are well supported, but Linux guests are, well, not what you'd expect from a Linux-based virtualization platform. Its list of supported Linux guests is quite small compared to VMware and non-supported Linux guests don't seem to run well at all. Ubuntu is noticeably lacking from the list. Overall for home use I felt that it had the best bang for the buck.

You could setup DRBD between the two servers to host the VM images and configuration files.

I believe this setup will allow for live migration between the two hosts. If not it should allow you to just start a VM up on either server should one go down. This could be automated a bit by using heartbeat to run some scripts to restart the VM's should one of the hosts go down. This article seems to do this with live migration and LVM.