The primary motivation for enterprises to adopt virtualization technologies is the promise of creating a more agile and dynamic IT infrastructure --- with server consolidation, high resource utilization, the ability to quickly add and adjust capacity on demand - -- while lowering total cost of ownership and responding more effectively to changing business conditions. However, effective management of virtualized IT environments introduces new and unique requirements such as dynamically resizing and migrating virtual machines in response to changing application demands. Such capacity management methods should work in ensemble with the underlying resource management mechanisms. Using Xen and its three different CPU schedulers, we analyze the impact of the choice of scheduler and its parameters on application performance and discuss challenges in estimating the application resource requirements in virtualized environments. 8 Pages