Virtualization to run windows
 

I need to run a windows domain controller using some virtualization software.

What is the suggested VM software? VMWARE - any particular version?

What is the process? Do I need to run X-Windows and keep a user session active for the machine to keep running?

Any version of VMware will do this. The QEMU product provides an Open Source alternative. Xen is often talked about, and FC6 integrates it along with graphical tools.

You need to run VMware Player and Workstation from an X-Window session as user applications. VMware Server, and Xen run as services, and don't have this limitation. I believe that QEMU can also effectively run as a service.