Cheaper? Maybe -- but people like VMWare for the management interface and often the other addions like DRS/HA, vMotion, vStorage.
Certainly smaller hosts with DR capability can be done for lower capital spend, but you need more capable admins to manage it. VMWare does that for you out of the box.
My experience with VMWare is that they do a very good job estimating the TCO of N physical servers and then they charge you such that it's ~90% of that cost to virtualize them.
I.e., VMWare is usually a better deal, but just barely. Drives me insane.
Certainly smaller hosts with DR capability can be done for lower capital spend, but you need more capable admins to manage it. VMWare does that for you out of the box.