I had previously written about running the Windows Phone Developer's Tools on Windows XP. Moving on to another unsupported setup I decided to try to run the development tools in an emulator. My conclusion: It's far from reliable.
I used VMWare on both a PC and a Mac. On the Mac I was able to get the emulator started before receiving a message about the computer's video adapter not meeting minimum requirements. The emulator did actually start, but it looked like crap. So I didn't bother to go any further to see how functional it was while looking like crap.
I tried a version of VMWare 7 on my Windows 7 machine. I wasn't able to so much as start the emulator. An update to VMWare that came some time later looked promising. When I checked the information on the emulated video card it looked to be compatible with the emulator. So I tried to start the emulator. Several times. Each time the result was that VMWare locked up and not even the task manager could kill it (the computer was still responsive but the emulated machine was pretty much dead). the only way to kill it was to disrupt power to the computer.
Peter Foot also installed the WPDT in an emulated environment. Hist results were much different. Before the update he wasn't able to run the emulator but after the update he was.
Having gone through that exercise and having not found success I'm not inclined to suggest a virtualized dev environment unless you have a physical device that you can use for registering.