I have a windows 2000 domain controller that I want to clone and put into my test network so I can rehearse an upgrade from Exchange 2000 to Exchange 2007 and to test out the Active Directory upgrade from 2000 to 2003. At first I looked at a couple of DR type options. The standard System State backup via NTBackup will restore into VMWare but because it restores a chuck of hardware related information as well the VMWare machine reboots then blue screens - not good. I'm sure there is a way round this with sysprep or with backing up that data separately but my experiments lead to a constantly rebooting server. I also found out that only works for Windows 2003.
Another option is to join the VM to the live network and DCPromo it as another domain controller, Snapshot, DCPROMO it down then restore the snapshot. This would work but I've heard of problems with errant entries in DNS when this approach is used.
After some head scratching I found a that does Physical to Virtual conversion (P2V) and it's free for single machines to VMWare workstation or VMWare server. If you want to convert to ESX server or convert a bunch of machines then you need a licence.
free tool on VMWare's site