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First let's be clear that Xen is open source while VMware is a commercial product. If you are looking to implement a Linux server virtualization solution for a customer with hundreds or thousands of servers, a VMware implementation can get expensive. But if you are supporting a Fortune 500 company insisting on fully supported commercial products, open source might not even be a choice.
Xen and VMware are also very technically different. Paravirtualization will provide the best performance, while fully virtualized environments allow for more guest instances. Xen, a hypervisor which can execute several virtual machines on one piece of hardware, is based on Paravirtualization.
VMware's flagship product is the ESX server, which loads on the bare metal level. VMware Server relies on a base operating system in order to run, which incurs additional overhead.
Further, there is also the option of choosing the virtualization software that ships with your client's operating system. If you are using RHEL5, virtualization is provided on all its sever products. Storage and extended server virtualization are provided with their advanced platform product.
Under normal circumstances, I would recommend that you use the virtualization product that comes with your system. Virtualization products that ship packaged with an OS will usually be more tightly integrated. For example, SLES10 ships with XEN. If their implementation works for you, why would you choose to implement something different at an added cost?
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