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I do software development, and I find myself needing more and more software "services" (like database, web server, testing server etc), which at the moment are all clogging my main ubuntu computer.
I've been thinking about using a hypervisor to encapsulate all this stuff nicely, but the ultimate solution would be to have the hypervisor itself be a VM, which would make for a great portable / plug'n play solution.

Can this be done ? What would you recommend ?

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I believe you can't unless you use an emulator (i.e. non hypervisor) virtualization layer like bochs on top of a VM, but performance would hurt.

What I'd suggest instead would be to use OS level virtualization like Solaris zones, BSD jails and Gnu/Linux Vservers/OpenVZ/FreeVPS.

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Ok, I do get those mixed up, and need to find out the deifference, as I've indeed seen some people mentionning this, in the context of a somewhat similar use case. – julien Nov 28 '09 at 12:00
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Some Hypervisors like ESX can be virtualised themselves for testing however it wouldn't be ever be something that you would want to use for anything other than testing the hypervisor itself as the performance hit after that many levels of abstraction would be unpleasant.

You would be better off grabbing another desktop and running up a proper hypervisor on it (ESXi/HyperV/Xen) and getting the disk IO away from your main desktop. Then just connect remotely. The physical system can run headless to save space/power.

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