VMWare vSphere 4 offers a new Fault Tolerance system that ...
VMware Fault Tolerance, based on vLockstep technology, provides zero downtime, zero data loss continuous availability for your applications, without the cost and complexity of traditional hardware or software clustering solutions
Is this the answer for the SMB that wants relaible servers? Assuming we have a SAN, two compatible servers, and the cash for the VMWare licenses -- is there any downside to VMware FT? Why wouldn't everyone be running FT?
With FT, for every VM that utilizes this feature, you will need one additional VM (obviously) on a secondary ESX host. The overhead is additional CPU and memory usage on the hosts, which will be relative to the workload of VM.
Please see this very detailed blog post on VMware FT: http://communities.vmware.com/blogs/vmroyale/2009/05/18/vmware-fault-tolerance-requirements-and-limitations
It may answer all of your questions.
Given your scenario the downsides that I see are:
Isn't it single-vCPU right now? I'd call that a big limitation.