The default i/o scheduler is the Completely Fair Queuing (cfq) in the 2.6 kernel. This is not the first choice for a virtual machine/hypervisor. The combination of the noop and the deadline scheduler is much better for a virtualization host.
virtual machine: noop
Set the scheduler temporarily (vm)
$ echo noop > /sys/block/sda/queue/scheduler
Set the scheduler permanently (vm)
kernel /vmlinuz-3.8.11 root=/dev/vgsystem/lvroot elevator=noop
(For the hypervisor replace noop with deadline!)
And don't forget to use virtio & raw devices for guest and noatime & nodiratime in fstab wherever it's possible.
Hint: VMware also recommends the noop scheduler for the guests.