Performance of virtualized file server is horrible. I've tried everything I
can think of. Anybody out there have any ideas?

Here's my configuration.

Server cluster, three identical HP Proliant DL380 G4 servers:
2 3.6GHZ 1M processors
12GB RAM
2 72GB SCSI drives for host OS
Dual integrated gigabit NICs
Intel Dual-Port PRO/1000MT Server Adapter
HP NC1020 Gigabit Server Adapter
Alacritech SE2002XT Dual-Port iSCSI Accelerator
Windows Server 2003 Enterprise x64 Edition SP2
Virtual Server 2005 R2 Enterprise SP1

iSCSI SAN
2 Netgear GS516 gigabit switches
Promise m300i RAID Storage Array
2 WD 7200 500GB SATA
10 WD 10K 150GB SATA
Promise m310i RAID Storage Array
2 WD 10K 150GB SATA

I've already tried turning off tcp offloading. I isolated the file server
by moving all of the other virtual machines to other cluster nodes, but that
didn't have any noticable impact on performance. Disk read performance in
the VM is not great, 33MB/sec. Read performance over the network from a
high-end workstation (with a gigabit NIC) with nobody else on the network
drops to 11MB/sec. Performance between virtual machines on the same host is
roughly the same--even using the MS loopback adapter. Disk read performance
on the host is great--even from the iSCSI SAN: I transferred 3GB off a SAN
disk onto the host disk in about 5 seconds.

I have hyperthreading turned on. Does anybody out there think that might be
a problem?