mack - 2:10 pm on Nov 23, 2011 (gmt 0)
From a purely cost point of view virtual servers are going to be a lot less pricey than running a machine per user. I only have very minimal experience with virtual servers under Linux, but I can see a lot of potential uses for it. Your situation sounds like a perfect reason to deploy virtual servers.
The neat thing I like about virtual servers is the hardware split. For example one virtual server only has its percentage of CPU usage, so even if a CPU intensive application is running on account 1 it will not effect the performance of other accounts (main exception being bandwidth)
There will be a little bit of work involved in getting the setup running as required, but you could set it up to scale through time. More users,more applications etc.