I use rsync to sync some parts of our (very new) virtual environment without any problems. I don't think this is a virtualization problem, as it is an I / O problem that you seem to have already identified.
I found that virtualization is very, very burdened with hard drives, and this is only getting worse, the more guests you have on the host box. For machines with very intense I / O, consider segmenting their disk access from other hosts. Do you use any SAN technology? We found this to be very useful at my workplace (we use two 8-core Sun Intel servers and a 1-TB 12-disk iSCSI array).
Is your hardware a fully supported virtualization software provider? If you are trying to run on unsupported hardware, then there is a good chance that your disk controller will not use the best drivers, which explains the slow access to the disk.
You can use iostat on Linux / Unix to get some feedback from I / O, and there is iotop too, although it is not yet packaged in many distributions.
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