Is virtualization right for my small office?

I wouldn't go down the virtualisation route - it is more trouble than it's worth for you.

I would look at finding one of your staff that has an interest in IT and training them up to be the IT champion.  Throw in a bit of formal training for them as well as a reward.

With your current kit, you haven't said what applications they are hosting along with AV etc so can't really comment on what you need to do with them.

I think the key is to try and build in resiliance into your current environment.

Well when a employee has a problem or failure of a computer what is it generally caused by? Is it hardware or software?  If you are having hardware problems then the View is not going to help you. Failover services for say ESX or ESXi would be very costly. You would be better off buying extra computers with a Ghost server. When an OS is corrupted the employee moves on to another system that has the same image. With a few keys strokes you could restore the other Os.  Bottom-line here is that we need to know more about what you are doing. With what you have told me thus far I would stay away from Complicating your solution by adding a layer of virtualization.  If is a great technology when used for the right reasons!

well look at it this way

5 - XP (32bit) Basic Desktops  
yes will go into vm's
1 - XP (64bit) Workstaton
yes will go into vm's
1 - XP (64bit) AutoCAD Workstation
yes will go into vm with a lot of memory
1 - SCO Unix Workstation - This runs our  plasma table (upgrading to Linux soon)
linux works well in vm's
1 - XP (64bit) File Server - Hosts all critical files, Retrospect backup, webserver (intranet only)
no don't put this in a vm

if you want to move the critical files off the server you could run a nas/san box using openfiler or freenas on your lan and if you put a decent hardware raid you should have no problem as raid 5 say will survive 1 dead hdd and raid 10 can survive 2 dead hdd's so raid 5 with a hot spare or raid 10 with a hot spare your data will be safe

Ghost anyone?

Thanks for the posts, you guys definately got me thinking.  I know more information can never hurt so here's how things work in our office right now.

Every machine in our office is tied into the File Server.  All My Documents, Desktop, Pst, and critical appication files and DB's are on the File Server.  The File Server is nothing but a stripped down XP machine running an AMD Phenom II X4 940 chip, 4gb DDR2 1066 memory, Areca 1210 raid card with sperate mirrored System, Data and Bakup drives.  I run Retrospect 7.6 on the File Server for backing up all our machines nightly.  This has worked well over the years for recovering from software issues, I can't remmeber a time where it has taken me more than a half hour to fully recover a machine from a software related issue.  I chose to the this route over Small Business Server because of it's simplicty, not requiring much time or attention from me.

Things I'd like to improve when I upgrade our system:

Hardware failure - Recovering from hardware failures are my biggest headache.  No one can work without their machine and complete recovery to dissimilar hardware isn't part of the Retrospect package. I've had to work late into the night many times rebuilding machines, those days need to be over.

Software/Hardware Upgrades - Right now I have to upgrade each machine individually and it's a real pain, I'd like to be able to stream line the upgrade process as much as possible. Creating system images that I can update and easily distribute seems like a great idea.

Overhead - I'm always looking to cut my overhead, whether it's time or money, the less of it I have to spend the better.  I know that I have to make an intial investment here and I have no problem spending the money as long it's the right fit for my company and I'm saving in the long run.

It seems like Virtulization may be a good road for me, but I also worry that I might be getting in over my head, increasing the work instead of reducing it. Let me know if you have anymore questions, and thanks again for the help.  Now I'm going to go research Ghost and it's dissimilar hardware restoration.

yes have you thought about thin clients and a virtualized server that way if your server is covered by raid and multiple psu's if not look on ebay for old servers with fault tollerent capabilities as they are tons of old datacenter servers like that on ebay as big companies aren't using them in their datacenters any more

and you can use any old pc as a thin client really

and think of it this way if a thin client crashes just replafce it with another thin client and your done no software as the software is on the virtual server

I think this is the main reason that I feel the virtualization is the aspirin in this case:

"Hardware failure - Recovering from hardware failures are my biggest headache."

Thanks to everyone for your comments.  I have not decided what direction I'm going to go yet but you have given me a lot to think about and helped me move further down the road to my solution.