CompactFramework and Virtual Machines

I have worked for quite some time on Virtual machines and have also worked on CompactFramework in Dotnet. However I have never been able to run an emulator on a virtual machine using DotNET 1.x. There were many explanations that I had come across in this regard
1. There cant be two layers of virtualization.
2. The WinCE emulator uses the same engine as Virtual PC. (Both have been developed by Connectix). Virtual PC2004 and Virtual Server 2005 are based on this engine and so it is not able to run a copy of the emulator inside itself.

However I did some research on this and was not convinced with either of the reasons. VS.NET 2.0 (Whidbey) allows an emulator to be run from within a Virtual machine. The reason may be that this uses a different emulation engine. Also, when I had tried to run an emulator from a VMWare virtual machine, it failed to run on that too. I feel that I need to gain more gyan on this.