Opinion on VM Setup Direct Storage or iSCSI

hi Everyone,

I would like some ones opinion on the following setup

I have a customer that has an IBm x3550 Server with 2 x QC 2.5 CPU 2 x 74GB (Raid1) and 8GB but will upgrade that in either of these scenarios.

I am having trouble getting the 2.5" HDD that suit this server due to its age, i can get smaller ones but looking for some 300GB

This server Currently runs as a Terminal server for about 15-20 People with Windows 2008 Server Std on it, and works quiet well still.

But, we have a problem in that as you will guess 74GB just isnt big enough even just for a TS with Apps on it, so i went looking at my suppliers in Australia and found that the 300GB Drives are getting hard to get.

So i thought that this maybe a solution as i can get any amount of 3.5" HDD.

I thought of maybe building a NAS form a x3650 that will give me the abiloty to haev 6 3.5" HDD in there and then installing Openfiler on it and running iSCSI for storage to the x3550's Datastore and then of coarse installing esxi 4.1 on the x3550 with iSCSI datastore back to the x3650.

Then move the 2008 Server Install to the VM on the x3550.

All servers will be connected via GB Ports of coarse

Having the VM stored on the x3650 will give me also the ability to move to another machine if and when the x3550 needs to go.

What are your views on this sort of setup

Thanks Adam