Does SQL Server 2005 run efficiently on VMWARE?

We are running a client/server application on windows server 2008. 15 concurrent users (4 are point of sale). Desktops are on windows xp sp3. We checked all infraestructure. Everything it is complaint. Wiring, switch and workstations. Server it is also domain controller. We are experiencing highly time response delays. We moved to a new server (because of this). Everything was set from start again. Database it is 25 Gb). Everything worked fine for a week only that at first time in the morning transactions started slow for about 5 to 10 minutes. Afertwards everything was normal. However after one week the application crashed. The transactions hits 100% on server and everyone slowed down completely.The only thing we are wondering it is VMWARE. Our server runs virtualized. Any kind of help will be appreciated.

Regards, Joe