I've been considering this type of setup for a distributed virtualization setup. I have several small locations and we would be more comfortable having a host in each.
I was nervous about running the firewall as a virtual machine, though if nobody screams bloody murder, I'll start exploring it further as it could reduce machine count at each location by 2 (backup fw).
I'm not as paranoid about the host providing storage to the VM's directly, for booting.
I'm considering using DRBD to replicate storage on 2 identical hosts to allow fail-over in the case of a host hardware failure.
What kind of VM management tool do you use; VMM or something else?