I've done consolidations like that plenty of times. Here is my low-risk method.
Get a new box (C2D with 8GB sounds right) and install ESXi or VMWare Server on it, install the VMWare converter on it as well.
Migrate all the machines to the new server, be sure to only have one or the other online at any one time, and set the new servers to the same IP as the old ones (they will keep the machine name and domain registration, but will revert to DHCP).
Power down the old servers, power up the VMs.
I've done this a lot, and the users have never noticed.
If they don't want to spring for a new box, one of the Xeons could do it. Just perform the steps above using any old spare machine, then once it is confirmed to work, blow away the old OS* on the Xeon and move the servers over.
*I haven't tried it but you could try installing VMWare server directly on the DC while it is running, and migrate the others to it. Leave the DC as a native server, and have the same hardware host the SQL and other machine virtually.