As others have mentioned it depends on several things:
- What does your environment look like?
- Do you have sufficient access rights to do development?
- Is your HW up to snuff?
Using a VM can help if you are working on multiple versions of a project; multiple projects; or targeting a different OS from the one you normally run (host OS). I do a lot of SharePoint work and being able to run a different machine for the various versions of a release is helpful since I can just start a different machine and have a good feel for the state of the GAC / database. Also if you need to target a *nix application environment but have a Windows machine then you can still do development in a VM (this is how I'm learning Ruby at home even though I generally do .NET dev work). I generally advocate when doing ASP.NET development testing/developing on the same version of IIS that the app will ultimately run under (this same rational applies to other server target environments). Depending on the version of OS there may be some small but critical differences. Note this doesn't imply you should code to a specific version of IIS / OS but let's be honest it really, really has to work where you're going to deploy it not just on your local machine.
VM's also (depending of the software used) allow you to take snapshots of the current machine state and / or clone them. This can be invaluable when prototyping something and you don't have to be as concerned about what is happening in your GAC / Registry / etc. I've also found them very valuable in setting up for a client demo ahead of time. Because the demo environment was in a VM I could continue working right up to the point of showing the client what we had completed because I was working in a different machine.
This generally applies to people that work for a company with a rather uptight set of policies for access rights. If you are unable to have unfettered admin on your machine this would be a good time to work in a VM. Typically the powers are only worried about locking down your host OS, the guest can be wide open (permissions wise). I have run into weird problems with roaming profiles, crippled admin rights, and running VS 2010; using a VM allowed me to avoid these problems.
Is your HW up to snuff?
This boils down to either your VM images are on a server and your remote into them OR you run them locally. If you are running on the server then the biggest concern is probably going to be are there too many VM's running on the same hardware. Locally you basically want plenty of RAM and to minimize how often you overload the R/W buffer for your hard drive. For basic LOB / SharePoint / ASP.NET development I've found that a minimum of 8 GB of RAM and a dual hard drive configuration works just fine in practice (running an i5 but I've worked with a Core 2 as well). The second hard drive makes the biggest difference in performance.
Note: I don't have any stats to back this up but I've noticed that Virtual PC has a tendency to underperform compared to both VMWare and Virtual Box. I can't speak to Hyper-V since I haven't worked with it. I wouldn't be surprised if using Virtual PC (as an initial foray into using VM's) jaded developer's on using virtualization software.