I had this thought experiment of installing an OS on a php server over http.
So, what I am asking: Would it be possible to build a VM player (using the server's resources) from a server language like perl, php, or python? Or is my understanding of servers and security lacking in a way that would show this to be impossible?
It's not as outlandish as you might think.
UeberHacker Fabrice Bellard (the guy who created QEMU, among many other notable achievements) recently did precisely that. He created a VM in Javascript. That runs a virtual Linux system in your Web browser:
http://linuxhelp.blogspot.com/2011/05/pc-emulator-in-javascript-run-linux-in.html