One of the issues that developers and administrators commonly face when trying to do Active Directory testing is the limitation of being able to host only a single domain on a server. You can use VMWare to work around this issue and host multiple domains on a single server.
VMWare, Inc. (http://www.vmware.com/) develops a very popular virtual machine technology that allows you to run multiple operating systems, even of different varieties, on a single machine. Their VMWare Workstation product can be used on laptops and desktop servers and is great for running simulations. Their VMWare GSX Server is oriented for enterprise solutions so that you could even run production- grade services from VMWare virtual machines.
As far as Active Directory goes, you can create several virtual machines on a single host using either the Workstation or GSX Server products to simulate a forest. I've personally used VMWare to help facilitate schema extension testing. Since there is no supported schema deletion process, once you've extended the schema, you cannot extend the schema again with the same extensions (if you wanted to test the extension process again). VMWare stores each virtual machine as a collection of files. Once you've created a baseline domain controller virtual machine, you can copy the files that make up that virtual machine and create as many domain controllers as needed.
If you support multiple domains in a forest, it can be expensive in terms of both hardware and people to support multiple test environments that are similar to your production environment. For each domain in a forest, you need a separate server. If you have a four-domain forest and want to create three test environments, you'd need 12 servers total. With VMWare, you could use three servers and host all four domains on each server. I suppose if you had a big enough server, you could even host all four test environments on the same server!
The new snapshot capability with VMWare 4.0 can make testing even easier. With it you can take a snapshot of a virtual machine and preserve its state at a specific moment in time. You can then revert to the saved snapshot at any time, irrespective of whether the machine is powered on or off. This is ideal for testing schema changes.
One of the caveats with using VMWare is that Microsoft will not support any issues that arise while running Active Directory or any other product for that matter under VMWare. In my experience, Microsoft support will make a best effort to try and troubleshoot problems with VMWare, but they will not guarantee a resolution.
Speaking of Microsoft, they have plans of their own for developing virtual server technology. In February 2003, Microsoft purchased rights to the Virtual PC software developed by Connectix, a privately held company. By mid-2003 Microsoft released a customer preview of the newly packaged Microsoft Virtual Server for Windows Server 2003. This will be a direct competitor to VMWare and provides many of the same capabilities. For more information on the Virtual Server, see http://www.microsoft.com/windowsserver2003/evaluation/news/bulletins/vmnews.mspx.
MS KB 273508 (VMWare Support Policy and Support Boundaries)