Quoting Megan Devis blog:
As you may know, Windows Server 2003 SP1 has been released, and a lot of people will be rushing to upgrade their virtual machines. If you’re thinking about doing this, though, plan on postponing it for a bit. Virtual Server 2005 was released many months before Windows Server 2003 SP1, and the Virtual Machine Additions are not optimized for it. You will be very dissapointed in the way your virtual machines run.
But don’t despair — Virtual Server 2005 SP1 will include updated Virtual Machine Additions for Windows Server 2003 SP1 as well as the other new supported host and guest operating systems.