I think exploring virtualization as a way to migrate to Vista is a good idea. Other companies are doing it as well. Greg, how are you deploying your applications now? Are most local installs? Since you'll be doing a hardware refresh soon, have you explored VDI through products such as Citrix XenDesktop, VMware VDI, etc.? I know that with XenDesktop, you could virtualize your users' desktops using a Vista image and then virtualize/remote those "unsupported" or incompatible apps through Citrix XenApp. Or, you could go with a pure XenApp solution where users have a local Vista image, but access incompatible apps through XenApp. You could just use Terminal Services, but I'm not sure it would be scalable or flexible enough for your environment.
Of course, you could always go with the particular solution Josh suggested: running a VM within a full client desktop. Virtual PC and VMware player might work well enough, though Microsoft has a more elegant solution in the Kidaro technology they acquired. However, I personally haven't used it or seen it in action. Same goes for VMware ACE.
--Brad