The next release of System Center Virtual Machine Manager (currently  dubbed “SCVMM vNext”) aims to consolidate management of virtual machines from multiple platforms and sources (VS 2005, VMware 3.x, and Xen in a future release). But to really win the war in the end, I believe MS needs to target the following key areas: 

1. DR / HA - MS currently has no true  VMotion equivalent today. Addressing disaster recovery scenarios is definitely a key area. Check out the High Availability with Hyper-V webcast.
2. Performance - By some estimates I’ve seen, VMware outperforms Virtual Server 2005 by 15-20%. We’ll see how far Windows 2008 cuts into that.
3. Make virtualization accessible for the mid-market - Virtualization has found it’s way into shops as small as 35 users amongst my clients, but the VMware mgmt interfaces (and let’s face it, virtualization concepts in general) are tough for IT generalists to grasp. Delivering a better mouse-trap to this market is critical for adoption.
4. Appliances - With the release of 3i, VMware enterered the world of plug-and-play virtualization with minimal user knowledge of necessary configuration items. This would no doubt ease deployment not only in mid-market, but branch office deployment in the enterprise space.

Read more about Microsoft’s plans for the next version of VMM HERE.