I don't think virtualization is a kludge. Conceptually it's elegant, and as long as virtualization is fast enough, it's also very practical.
The biggest advantage I see is that as virtualization becomes faster (hardware support, improvements in hardware speed, OS tweaks etc.) and ubiquitous it allows Microsoft to radically overhall the OS, fixing the parts that really need to be dealt with. Why, one day the WIN32 API might only be availiable in a kind of "Classic Mode".
The transition worked for Apple and allowed them to build a more reliable and appealing product and so I'm sure it can work for Microsoft too.