I'm not sure that I think multi-instancing is better than VMs. First you can't balance memory easily with instances. VMs allow you to more easily move memory around. That may or may not fit.

In terms of licensing, I'm not sure that's true either. Depending on your version, there may be no difference between licensing 4 instances and 4 VMs. The licensing has changed by edition, version (SS2K v SS2K5 v SS2K8), and type of licensing. You'll have to check for your situation if this matters.

In terms of running stable environments, one of the large satellite TV providers runs almost all VMs for their servers. A couple of the very heavily used SQL Servers are not on VMs, but dozens of their SQL installations are, including many fairly important databases. They do use a couple of tricks to make the database servers work differently than things like DCs, file servers, etc.

Normal servers are usually 10:1 on a blade. SQL Servers are about 4:1. They also have virtually clustered the SQL Servers and do not allow them to flow with Vmotion. A few float, but many do not, and with dedicated HBAs, this allows failover to another blade with known performance characteristics.

I am also not sure I agree that VMs are there to sell SAN space. A SAN may or may not be a good idea in your environment. I'm torn on them as performance can be better or worse, administration costs are higher, new machines, etc. On the other hand they do centralize storage, allow some interesting DR options with 2 SANs and they can have great performance. You can also more easily grow space, or add space, to a server than with DASD. VMs don't require SANs; you just need to set up good IO subsystems however you run things. The SAN is there if you want to float those VMs to new machines and require shared disk.

I've seen VMs also cause performance problems because sysadmins think that a new VM somehow gets them free resources. You still need to balance and plan for performance. They do allow you to quickly increase hardware if demand changes. If your 2x2 or 2x4 suddenly is too small and you need a 4x8, VMs are a great way to do this. Previously people caught in this situation tended to overbuy machines to prevent it since it is much harder in many companies to get the approvals to upgrade a machine, or buy a new one. As a result we have many under-utilized machines in data centers that also cover up planning mistakes.