A Type I hypervisor essentially encapsulates our guest operating systems as just another application. The fact that our guest OS is being executed by another layer results in some latency that is impermissible in some use cases, for example heavily utilized transaction databases. However with the advances in CPU micro architectures and the inevitable reduction in the price of solid state storage the current execution and I/O latencies being experienced can be greatly reduced thus making more use cases virtualization friendly.
Taking a 30 foot view of future OS architectures, I see a TYPE I Hyper visor such as XENSERVER or VSPHERE becoming the physical servers Operating System while current server operating systems will evolve into lightweight hyper visor aware execution containers playing a role similar to the present day Java Virtual Machine.Future apps written written for windows are presented by the execution shell’s presentation layer (such as WPF) while access to hardware devices is transparently handled by the Hypervisor via the execution containers API functions which are implemented as interfaces that request hardware related services from the hyper visor.
The current server OS’s might evolve into hyper visor aware apps.This means they are now fully aware of their encapsulation within a hypervisor and are constructed to make calls directly to their hosting hyper visor instead of sending commands to virtual devices. Think how windows uses direct memory access today except that all hardware related calls would be sent directly to the Hyper Visor / primary operating system.