To be fair, this is only true if the storage back end is appropriately configured.
You will take an I/O hit when instead of a single physical machine asking for a set of sequential blocks off the disks, you have 20 virtual machines asking for seemingly random blocks off the disks.
Replace disks with storage array if you'd like.. but the fact remains: more VM's will mean more storage contention. If you have the funds to have dedicated arrays per VM, hats off to you. Most people never do this, and I/O suffers a penalty. Virtualization has is price, and even that being said, I think it's worth it for most people.
Your point about having multiple VM's forming additional seeks is correct, but it misses the bigger picture.
Basically, on any reasonably sophisticated hosting infrastructure those arn't a problem.
If your problem is just seq->random conversion due to additional VMs then bcache/flashcache does a surprisingly good join at making that just plain go away with little additional cost.
On any reasonably sophisticated host you have a DSAN, which has a cool little stats trick, which basically means that as you add additonal vm's together the variance on the total IO load drops, and the load pattern itself becomes more and more normal, the larger and more uncorrelated you get.
That gives each vm more 'burst' capacity when required with many fewer failures (ie. the vm asks for more IO then the current capacity of the system).
This leads to a bunch of interesting stuff when you try to apply it in real world systems, either in HPC or in clouds.
You will take an I/O hit when instead of a single physical machine asking for a set of sequential blocks off the disks, you have 20 virtual machines asking for seemingly random blocks off the disks.
Replace disks with storage array if you'd like.. but the fact remains: more VM's will mean more storage contention. If you have the funds to have dedicated arrays per VM, hats off to you. Most people never do this, and I/O suffers a penalty. Virtualization has is price, and even that being said, I think it's worth it for most people.