I have a similar setup on yours, I personally prefer VMWARE ESXi its free and you don't have to pay a cent. just go to VMWARE and make sure you download vSphere 4.1 (latest) which is your access client. install it on your desktop or laptop managing the r710. download and install ESXi 4.1 on your r710 and then access it using the giving IP from the server using the vSphere client.  install any VM anyway you want.
you can figure out how much resources to allocate each vm , I hope ;)

one note thogh, the free ESXi doesn't allow you to use scripts to manage your VMs, and move around images like the paid expensive vCenter would, but there is always ways around it if you search the web and be patient. or if not just ask and i shall tell.

ianother limitation is only allows for virtualization of 2 physical processors. so if u have 2 quad cores or 2 dual cores or something your fine. but if u paid something like 30 grand and have 4 quads u better go pay vmware and get the real deal.

hope this helps.

I would be fine on the processors, 2 quads, only a 5k server ;).  But I'd rather stick to doing Hyper-V, my experience and knowledge with VMware isn't much.  I will probably end up looking into the ESXi though if its looking like this Hyper-V thing isn't going to work out.

also vmware does not each up any resources.
easy to use.
more robust than microsoft

Ya the USB is definitely going away.  I just spent the last 6ish hours doing a test Hyper-V Server 2008 R2 on a USB stick and holly performance nightmare.  Took pretty much the whole time to do the installation of the server, which already was a vhd setup with the wim.  I just ended up killing it off near the end and it still wasn't done.  I was getting around 14 mb/s write on it when I created it so I thought it might not be too bad but oh man either the internal USB is 1.0 on an R710 or thing is just general crap running off USB.

Already running System Center Essentials 2007 so likely to upgrade that to 2010 shortly which includes Hyper-V management for small/mid biz and in the term managing on a remote MMC with RSAT.  Full SCVMM and SCOM would be very nice but probably not necessary for this network size.

I suppose my other option now is to do Hyper-V Server 2008 R2 on HDD.

So Hyper-V Server 2008 R2 vs Windows Server 2008 R2 w/ Hyper-V role, I will be doing management remotely regardless with RSAT and/or SCE2010.  Do I do Hyper-V Server?

Hey guys thanks for all the input.  I have ended up going with Hyper-V Server 2008 R2 installed on hard drives.  Doing Hyper-V Server gives the advantage of first being free, with every feature and none of the RAM/processor limitations, and can then use existing VLs of Windows Server 2008 R2 Standard for VMs.  USB was so not working out and I could never recommend it, the performance is terrible.  I mean using 2 146GB HDDs for a tiny OS seems so overkill and kills 2 HDD places on the server but it gets the performance and is way cheaper then buying some insane performing USB key that will probably still suck in the end.
I have joined the host to the domain, I could unjoin but I will give SCE a try first, although managing with RSAT hasn't been a big issue.  
I have given the host internet access just with the way I have setup the teaming and adapters for VMs.  There are 4 NICs, I have split them into 2 Teams of 2.  1 team going to our internal LAN server VLAN that allows for internet access and this team is available to VMs and the host.  The other team going to our DMZ that does not allow outbound internet access and is available to only the VMs not the host.  I did it like this so I could setup and update new VMs on the internal team first and then move them over to the DMZ team once ready and they would then be isolated.  So eventually only VMs are sitting in the DMZ, which is pretty much the only outside entry into the network.  Might invest in additional network card later to further isolate/secure the host machine but I think the setup now is working good.
For the reference of others that may google stumble across this question I will provide all the steps I went through to get all the parts working.  I found the documentation and miss information about getting those components installed terrible out on the internet, so hopefully this makes someone else's life a little easier.
Installed Hyper-V Server 2008 R2
Windows Updates download and install - ALL
To install Broadcom BASC

First need to install additional features (BASC requires .NET Framework 2.0, this was an issue on non R2 but 2008 R2 now has them as included features), reference - http://support.microsoft.com/kb/976736 
NetFx2-ServerCore - DISM.exe /online /enable-feature /featurename:NetFx2-ServerCore
NetFx2-ServerCore-WOW64 - DISM.exe /online /enable-feature /featurename:NetFx2-ServerCore-WOW64
Once features installed run setup.exe from Dell Broadcom driver extract (Broadcom\Driver_Management_Apps_Installer\setup.exe)
Then start BACS.exe from c:\Program Files\Broadcom\BACS\ to setup and configure teams.

To install Dell OpenManage Server Administrator

Reference - http://www.mcbsys.com/techblog/2009/11/setting-up-dell-openmanage-on-hyper-v-server-2008-r2/ 

To install APC PowerChute Network Shutdown (this was the hard one, very hard)

Download and install Java JRE 64bit (have fun finding the 64bit download on an x86 machine :( I setup a 64bit VM to do this, then copy to the host, so sad oh man!)
Now you need 2.2.3 because APC has decide they need to milk their customers even more and removed support in 2.2.4 and created 2.2.5 just for Hyper-V at $100 a server.
So see open discussion on this EE question https://www.experts-exchange.com/questions/25006960/Powechute-Network-Shutdown-2-2-4-Hyper-V-Server.html
or below for a copy of those instructions.

Shh dont tell APC and grab a copy while you can but a simple ID change in their URL will give you 2.2.3 right off their site.
sw_sku=SFPCNS223
http://www.apc.com/tools/download/software_comp.cfm?sw_sku=SFPCNS223&id=127&family=127&part_num=SEPCNSHV&swfam=&tsk= 
Then you'll need to modify the install.vbs if your doing on Hyper-V Server 2008 R2 for myself at least haven't tested any others.
' Check OS type
CheckOS
' Check root account
IsRootUser
Just comment out those calls to subs so it looks like
' Check OS type
' CheckOS
' Check root account
' IsRootUser
Used JRE6 64bit for Jave on mine as well, all seems to be working fine!