Which Linux distro would be best suited to do something like this? Something minimal would of course be best.

to run in a virtual? or to run virtual servers?


DSLinux is good in virtual 50mb in size with a gui

ESXi is now free from vmware if you want a server to run virtual servers
(ESXi is Red Hat Linux that is bare bones and tweaked for optimal performance running vmware slices.

Most distros can be customized during their install to be as barebones as possible. Rather than install the default packages, strip out everything except what you need. And even then, troll through the rpm DB and services list and take out even more items. (e.g. bluetooth, cups, avahi are examples of things that can be removed.).

To your scenario, I have a Fedora10 install (with Gnome) and not much else for the sole purpose of testing machines under VirtualBox. I can run, simultaneously, 3x Win2k8 virtual machines on a single Dell AMD dual core 2200 (not sure about the speed) with 2GB RAM without issues. Certainly useful enough for testing.