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Better to virtualize domain controller?

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I don't pretend to know much about this other than a very basic understanding, so please bear with me.

We've purchased a new server that we'll be using exclusively for hosting RDP for two clients. Each client will have their own virtual server. We're struggling a bit though trying to decide where to put the domain controller.

There are two things we're considering:

1. The physical server runs ONLY a Hyper V role doing nothing else and we load up a 3rd virtual server that will act as the domain controller for the other 2 virtuals.
or
2. The physical server runs runs the Hyper V AND acts as the domain controller.

The guy loading up the box is suggesting the first option. It seems to me, however, that we're adding another level of "stuff" with the domain controller being a virtual rather. My thinking is that everything has to eventually go out through the operating system on the physical machine. Making the domain controller another virtual rather than the operating system on the physical box, adds another step where things have to go through the virtual DC THEN out to the physical box.

One of the arguments for the 1st scenario is that we can allocate resources to it more easily if the domain controller is virtual. I also like the fact that if the domain controller goes to crap, its just one file that needs to be restored and we're up again. He also brought up the fact that the virtual DC could be restarted (after updates, for instance) without having to shut down the other 2 virtuals. Whereas if the DC is loaded on the physical box then the other two viruals would have to be shut down before a restart of the DC could occur. However, I'm not sure that stuff outweighs any performance loss that might occur going through (what I'm perceiving as) the extra step of a virtual DC.

Any insights would be GREATLY appreciated.

Thank you,
Ken


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