I'm getting a fair amount of questions about this topic lately so worth a blog entry.
The best way to install any beta (or even more so CTP's) is to use Virtual PC. This will save you from having to reformat your entire machine a few times. I don't think I've ever know a VS.NET beta release that uninstalled properly.
So if you are going to use Virtual PC - the best way to get started is to find a friend who has already done the install successfully and get them to give you a copy of their Virtual Machine's.
In general with VPC's, you get better performance if the VHD files are located on a drive other than what your host OS is installed on. If you have a 2nd internal drive, great, otherwise, a good 7200 RPM external USB 2.0 drive will give a good performance boost. You'll also get best performance if you don't use a differential drive or an undo disk. To save memory and CPU cycles, turn off any unessential services and running programs in both the host and guest operating systems.
Yes, you need 2 machines for VSTS - one for the server/data tier, and a second for the client. You can't currently install everything on one box - that is not a supported scenario - at least for now. Your server should also be a domain controller. Unless you have 2 GB of ram, you'll likely want to host each one of those VPC's on a separate box. I've had good results having the server/data tier hosted in Virtual Server. You also have no real need to log in/have a UI open for the server box once it's all installed and configured.
There is a good document here with more detailed installation instructions: http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnvs05/html/vstsinstallguide.asp
Having said all of that, the next beta is due out this month or early next month so you might want to wait to get a much better experience. As always, keep in mind that beta's are flaky and CTP's are worst than that.