Most of this stuff is a moving target, so it's very difficult to anticipate what will (or won't) make it into Longhorn.
It is clear that Microsoft eventually wants to take the virtualization stack and the hypervisor and make them part of Windows "sometime in the Longhorn timeframe" (i.e., 2007-2009?), according to Microsoft's Bob Muglia, in an interview he gave back in 2005.
One theoretical possibility is that the operating system may become a way to create and manage multiple virtual instances of itself for the sake of security -- for instance, if you want to try out a new application, you could test it out in a virtual instance of Windows before committing the changes to Windows at large. But how they choose to implement it and to what degree is still up in the air, so I wouldn't imagine that Microsoft Virtual Server and Virtual PC are disappearing anytime soon. (And even if they did, I don't imagine the virtual machines created for them would be useless.)
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