I still have to resort to ArcGIS in a virtual machine from time to time on my Macbook, and have experimented with performance issues over the years. As @Chad Cooper mentions, XP will feel very snappy indeed ... so does Win7 but it's worth taking the time to tweak it (get rid of Aero, replace the default 'find' with 'everything' app, etc; lots of advice about that online).
As far as the windows VM is concerned, it has its own hard drive and the Mac doesn't exist - but the VM software lets you share folders which appear as network shares.
As far as performance goes, the interface with the file system is, indeed, your biggest issue. The most convenient way to work with your data is to keep it all in a shared folder within your Mac filesystem, so that files are accessible to both. That's a great way to keep track of your data, particularly when using something like GISLook to preview rasters and vector data in OSX. HOWEVER ... you take an enormous performance hit when the VM is accessing files on a shared directory!
When testing GIS operations in a not-terribly-complex project (2 DEM rasters, 20-30 simple shapefiles), both calculations and display were affected by the location of the files:
- Shared folders - 40 seconds to run operations;
- Shared folders MAPPED as drives within XP - 15-20 seconds;
- All GIS data in the virtual drive - 5 seconds.
This was with VMWare 3.x 18 months ago or so - but things change, and I hear the performance of both Parallels and VMWare and Virtualbox are much improved in comparison!
My current solution: I have a "Data" D:\ drive which is a virtual hard drive (VirtualBox) that mounts with the C: system drive - I synchronise the data directories with shared folders on the mac to keep things tidy. Keeping the D drive separate keeps its size down and lets me back it up separately in Time Machine.
Tip: create a 'sparse image' in Disk Utility, and create your virtual hard drive inside it. Let Time Machine back up only that image, not the main C drive (main VM file). "Sparse disk images" are interpreted differently, and only the individual blocks of data that have changed get Time Machined on backup, instead of the whole giant file.