With the advent of virtualization in desktop and server computing for variety of reasons it's imperative that embedded systems too see a growth of this approach in coming years. WinCE emulator is a virtual machine already. Only problem with it is that it's limited in it's functionality. We need to see more functional virtual machines for exploit full power of WinCE and development conveniences, testability and debugability that it brings along. Over the years VMWare has proven that virtual machine provides great benefits for build -> test -> debug development cycles. I am sure embedded operating system and OEMs will come up with something similar before very long. References

1. Vmware - http://www.vmware.com/
2. Microsoft Virtual PC - http://www.microsoft.com/windows/virtualpc/default.mspx