Drawbacks are the performance is
I've found that as long as you throw enough RAM at it, it seems to perform ok. Many VMs will allocate 128-512, which is on the lower end of what I'd consider useful.
To me, a bigger drawback is that it is unsupported. Vendor supplied updates will kill the installation.
As for legality, it is Legal to run OS X Server (Leopard) in a virtualised form, but only on Apple hardware. You cannot even run OS X Client in VMWare Fusion or Parallels, legally. Nor can you run any version of OS X on VMWare Server, or similar on other machines.
Interestingly, you may be able to legally run OS X Server virtualised on Apple hardware, even if the guest OS is not OS X. However, it would likely be subject to the same caveats as above: it would require a "fixed" version of the OS. And by "fixed", I mean like my cat is "fixed".