Last year VMware acquired a French company called Trango, who had a tiny hypervisor written for ARM and MIPS. It's completely paravirtualization, i.e. modifications to the guest kernels that run on top of it (including Linux, though no patches are publicly available that I've found). (Mind you, it's only a thin hypervisor, but that probably makes sense for these low-end processors.)
So that's where this WinCE+Android demo comes from. It's cool, but is it just a demo? Who actually wants virtualization in consumer electronics? Well, another embedded virtualization vendor, OK Labs, claims they're installed in 250 million cell phones.
The funny thing is that I expect virtualization to be adopted more quickly in networking (Cisco, Juniper, et al) than consumer electronics. Of course, you probably won't see flashy demos from there, just more robustness, more features, and maybe even a better profit margin from the vendors (because they don't have to rewrite as much software).
Anyways, if there is still doubt about virtualization in embedded systems, I think demos like this should help evaporate it.
Update: Reacting to the same story, Ars Technica opines that embedded virtualization is "inevitable."
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