Back in my DSW days, we did a fair amount of development in Delphi (a RAD application builder from Borland), and we noticed a trend. We frequently won return business by our customers (the hallmark of a successful consulting company), but we always ran into a major hassle: re-setting up the environment. Delphi, being a component-based development environment, took advantage of a rich ecosystem of third-party components. Why write something from scratch when you can buy it, frequently with source code included? However, using third party components meant that every application development environment is subtly different. Client A uses this widget, but you have to make sure not to use it for client B, because they don't own a license for it. Conceptually (but not actually), these controls were like ActiveX or .NET components in that they were installed on the developer's machine and became part of the operating system (at least as far as the developer tool was concerned). We thought a bit about how to isolate each project from another (some project setups would occupy a week of time, getting the right Delphi version and components installed just the way we left them). The problem was one of isolation: you can't encapsulate the development environment (or the developed application) at any level lower than the operating system.
They we developed a clever solution: start building our applications in VMWare. VMWare had just gotten Really Good at that time, and we realized that we could take a generic Windows ghost and install all the necessary developer tools on a VMWare image and develop on it. The speed hit at the time wasn't terrible, and it allowed us clean-room development for each client. When that phase of the project concluded, we save the VMWare image out to a server. Two years later, when that client came back for enhancements, we started up that application's development environment just like the day we left it. This approach saved us days of downtime, and made developing for multiple clients a breeze. Client A needs some minor tweaks while I'm working on client B's application. No problem, just bounce between virtual machine images.
Why do I bring this up now? Because the exact same scenario is playing out in the .NET development space. Most third-party components either GAC themselves or have stringent licensing requirements. Virtualization has gotten pervasive now, so if you have to do development on a machine that isn't a throw-away pairing machine image, life is easier if you sandbox it into its own virtual machine. I did this out of necessity on my former .NET project because I was developing on a MacBook Pro. However, I think this is wise for any development effort in a platform (like Delphi or .NET) that can't be isolated at any level lower than the entire operating system. This isn't as big a problem with Java or Ruby because they don't irrevocably couple themselves to the operating system. This is one of the prices you pay for that tight integration with Windows that .NET gives you: you can't de-integrate when you need to.