From the error message you are describing, you are encountering a permissions issue accessing the Options.XML file which contains the Virtual Server configuration settings.
By default, Virtual Server 2005 R2 (including SP1) setup only creates a permission entry for the local administrators group (with full control permissions) during installation. You must script or manually configure additional permission entries to grant other users or groups the permissions needed to create, manage, and use new virtual machines, virtual hard disks, and virtual networks.
Be aware that new permission entries that you create through the Virtual Server Security Properties translate into specific NTFS permissions on the various VS 2005 R2 folders and files installed on your file system. Try to avoid making direct manual changes to NTFS permissions to grant users/groups access rights to these files as these can compromise VS security.
Best Regards,
Janique S. Carbone ♦ Infrastructor Group ♦ (w) 832-621-5087 ♦