Hey. Cool. I love making those sorts of guesses and hitting the target.
Actually, I've seen some problems in the past on non-VM machines and certain videocards. I know that ATI's proprietary drivers (for a long time) could not handle switching between a virtual framebuffer and non-framebuffer modes without graphical glitches or other hangups.
The issue is that you are going from a virtual framebuffer console mode and switching back and forth to something else. In most cases, this works fine, but buggy drivers (or other issues, like running through a VM) aren't ideal operating environments.
The lilo.conf looks (even before modification) fine. Just out of curiosity, which driver are you using in the xorg.conf? I'm curious as to what might be the incompatible driver. Is it an emulated driver that the VM comes with, or is it a real driver?
Here is something that you might be able to do if you want to switch back to a higher res "VGA" framebuffer console. Modify your /etc/X11/xorg.conf to use the "fbdev" driver instead of the driver that it is currently using. It is my understanding that the Slackware default is to use this driver... At least it was for a while. Slackware has an xorg.conf-fdev config file in that same directory, that you can probably use without modification. That way, when your system boots to runlevel 4, and switches to X on tty7, it doesn't actually change modes. It will just use whichever setting you have in the lilo.conf that is used during startup.
The only bummer with using fbdev in X11 is that you don't have 3d accelleration. I'm not sure if this matters to you though, and the VM may not even have 3D support (I've never used it before). Something to consider though.