This depends on the type of licensing you have for the server product. If you're using SQL Server 2005 in a per-processor licensing mode, you need to have a license for each virtual processor used. For instance, if you run four processor-licensed editions of SQL Server 2005 in four separate VMs, you'll need four licenses.
However, if you're using SQL Server 2005 in the per-server / CAL licensing version, you can use as many instances of SQL Server within a given single physical or virtual OS instance as you need. So if you had one virtual machine, you could run as many instances of server/CAL SQL Server in that VM as you needed -- but if you wanted to run more instances in another VM, you'd need another per-server license.
Further clarification: Any copy of SQL Server, even those that ran in a VM, will need to be accounted for. Keep in mind that there are trial versions of SQL Server that can be run in a VM for a limited time, and there's also the SQL Server Desktop Engine, which is free but has some constraints on the size of the database that can be run and a few other things.
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