No, there's no ban on virtual Vista

Update 18-Oct: Microsoft has issued yet another "clarification." They say you really can't legally run Vista home versions in a VM. I say their agreement is incomprehensible and their policy is stupid and short-sighted. Details here.

There's a lot of confusion going around about the new Windows Vista licenses. I wrote about the two-machine limit earlier this week. Now I see Gregg Keizer at TechWeb and Robert McLaws of Windows Now arguing that the new license bans the use of Windows Vista Home Basic and Home Premium in virtual machines.

I believe their interpretation is wrong. In fact, I think Microsoft deserves credit for this change, which actually gives purchasers of Vista Ultimate a benefit they wouldn't have under any previous Windows license.

The Vista license marks the first time Microsoft has explicitly addressed the issue of virtual hardware in a consumer-oriented product, I believe. The current license for Windows XP makes no distinction between physical and virtual hardware. It says, "You may install, use, access, display and run one copy of the Product on a single computer, such as a workstation, terminal or other device ("Workstation Computer")."

Under the current XP license, a virtual machine is a separate computer and needs a separate license, with a separate product key and product activation. The new terms in the license for Windows Vista Home Basic and Home Premium continue that policy and make it crystal clear:

You may not use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system. [emphasis added]

The qualifier is crucial. Does the clause quoted above say you can't run any copy of Vista Home Basic or Home Premium in a VM? No. It says you cannot reuse the copy installed on your physical computer within a virtual machine on the same computer. That's no different from the way XP works today. If you want to run a second copy of your Windows operating system in a VM, you need a separate license.

But Vista Ultimate is different. Under the Additional Terms section for that OS, the license reads:

You may use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system on the licensed device.

In other words, if you are running a licensed copy of Vista Ultimate, you can load another copy of that same OS, using the same product key, in a virtual machine on that same computer (the "licensed device"). This license gives Vista Ultimate users a right they wouldn't have with any previous version of Windows. (The Vista Enterprise license will reportedly be even more generous, giving users the right to run up to four virtual copies on the licensed machine. There's no indication of what virtualization rights will be included with Vista Business.)

In this case, at least, Microsoft deserves congratulations, not criticism, for addressing the issue of virtualization in a way that makes sense for its most tech-savvy customers.