I'm not sure if this is the case, but it is possible you are missing the Windows Media components: Server doesn't come with it installed by default. IIRC, you'll need the Desktop Experience Feature.
AFAIK, the lack of a sound card should not be an issue if you are not actually playing any music on it, since the audio paths are sound card independent, to the best of my knowledge. I'm not sure how much of MC relies on a GPU, either, especially for conversions. Short of the new Intel encoder, I don't think anyone's implemented h264 encoding in hardware (bearing in mind h264 decoding is proving challenging enough)
If you are afraid that things get I/O bound, and they do, a virtual machine is probably not for you. I see good virtualisers (VirtualBox) with I/O overheads of using 1 physical core, delivering less than 30MB/s read/write.