A. It depends on what you want to protect. If you install a DPM agent on the virtual server's main DPM 2007 administrator console, you can choose only which virtual machines (VMs) to protect. You can't protect any applications run by the VM. If you deploy the agent in the guest OS, you can protect everything the VM runs. For example, if the VM runs Microsoft SQL Server, you can protect the databases and capture the transaction log data.
There are also licensing considerations. If you deploy the DPM agent in the guest OSs, they each need an agent license.
This doesn't mean that protection at the virtual-server level is inconsistent. Virtual Server 2005 R2 SP1 has a recursive volume shadow copy service (VSS) writer, so when DPM 2007 asks the virtual server for a snapshot, the request is passed to all VM VSS writers, so you get a consistent data backup.