Networking in Virtual PC and Virtual Server
Configuring Virtual Server R2 network
Unlike Virtual PC, Virtual Server R2 has more features to configure networking between virtual machines, but their network principles are the same. Virtual Server uses two networking types:
- Internal Network (similar to Local Only in Virtual PC)
- External Network (it uses a physical network adapter of the host system to work with extranet)
After you install Microsoft Virtual Server, it automatically creates one internal and several external networks (as many as the number of physical network adapters in the host system).
To see the list of available networks in Virtual Server, choose "Virtual Networks" -> "Configure" -> "View All":

The list of available networks in Virtual Server
Then you will see the list of available virtual networks:

The list of available virtual networks
As you can see in the picture, we can use a virtual loopback adapter just like in Virtual PC. To edit virtual network properties, point a mouse cursor at a virtual network name and choose "Edit Configuration".

Editing virtual network properties
We can edit network or DHCP settings here. As you click "Network Setting", you will open a virtual network editor:

Virtual network editor
You can change the name of a virtual network. The network adapter field specifies a type of the virtual network. If it contains "None (Guest Only)", virtual machines, which network adapters are connected to this network, will work only with each other. Network of the host system will be inaccessible (similar to Local Only in Virtual PC). If you choose a physical adapter of the host system, the networking type will be similar to Virtual Networking in Virtual PC.
You can add a virtual network adapter to the edited network in the "Disconnected virtual network adapters" field. You can edit a description in the "Virtual network notes" field.
If you get back and click the DHCP Server link, you can enable and configure a DHCP server for this virtual network:

Configuring a DHCP server
DHCP settings include all necessary properties of a network adapter it specifies at startup (starting and ending IP addresses, default gateway, subnetwork, DNS and WINS servers, etc). As you configure a DHCP server, you must take into account that the first 16 addresses of a given range are reserved by the server and are never assigned to virtual machines. DHCP server is disabled by default for external networks, so that virtual machines could obtain network settings from the external network.
After you configure a virtual network, you may proceed to the configuration of virtual network adapters. You can also create your own virtual network by clicking the Add link in the Virtual Networks category. Virtual Server allows to create an unlimited number of virtual networks with as many virtual machines as you like. When you create a virtual network, a .vnc file with network settings is created in the \Documents and Settings\All Users\Documents\Shared Virtual Networks folder. You can then import this file to Virtual Server. Remember that virtual networks cannot be moved to another physical host, because their settings depend on the host hardware.
Configuring network adapters in a virtual machine
To configure one or several virtual network adapters, move the mouse cursor to the name of a virtual machine in the main Virtual Server window, then click "Edit Configuration" and "Network adapters".

Configuring network adapters in a virtual machine
On this page you can choose a virtual network, to which a virtual network interface will be added, add another network interface (up to four interfaces in a virtual machine), and specify a static or dynamic MAC address (Media Access Control) of a network adapter. Microsoft recommends to use dynamic MAC addresses to avoid network conflicts between virtual machines. If you use static addresses, make sure they are unique in each virtual machine (this is especially important, when you deploy virtual machines from a single virtual appliance on different servers). If there is still a conflict of MAC addresses, in the .vmc file replace the line
<ethernet_card_address type="bytes">0003FFxxxxxx</ethernet_card_address>
with
<ethernet_card_address type="bytes"></ethernet_card_address>
then reboot the guest system, so that Virtual Server could assign a unique MAC address to the network adapter.
Like in Virtual PC, you can disable networking in a virtual machine by choosing "Not Connected" in the "Connected to" field. Virtual Server does not have Shared Networking. But you can easily get similar functionality by binding virtual machines to a loopback adapter and then enabling Internet Connection Sharing.
Conclusion
Virtual PC and Virtual Server platforms allow users to create virtual networks with various interaction scenarios. Even though they are not configured as flexibly as in VMware products, they still allow all popular scenarios of using several virtual machines on a single host working in one or several isolated or connected networks. As both Microsoft platforms are free, they can be used by enthusiasts, home users, and small companies. Virtual Server and Virtual PC offer a huge field for experiments, virtual networks training, if you don't have an opportunity to build a real network.