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I am running Hyper V with a 3 servers. I added a new server with Biztalk 2006 R2 and it requires SQL Server. Can I install the SQL Server 2005 Developer's edition? Whould this cause a hugh performance hit to my hyper v server? This will be used for test purposes.

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No you'll be fine. If anything I recommend ratcheting down the max memory setting in SQL Server so it doesn't suck up all the memory resources (as this is the default behavior for SQL). If you're only doing this for testing you'll probably be ok giving SQL between 512MB-1GB of RAM

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We have an SQL Developer instance installed in a VMWare server and although you'd never run production on it, for testing and development it's fine. –  Mark Henderson Jun 16 '09 at 1:57
    
Why wouldn't you run it in production? Because its developer edition or are you afraid of virtual sql servers in prod? Don't be afraid of virtualizing production sql boxes. Go to sqlpass.org and check out our Virtualization Virtual Chapter (see Community-->SIG) –  SQLChicken Jun 18 '09 at 23:42
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From the SQL Server 2005 Site:

SQL Server 2005 Developer Edition allows developers to build and test any type of application with SQL Server on 32-bit, ia64, and x64 platforms. Developer Edition includes all of the functionality of Enterprise Edition, but is licensed only for development, test, and demo use.

Each license of SQL Server 2005 Developer Edition entitles one developer to use the software on as many systems as necessary and additional developers can use the software by purchasing additional licenses. For rapid deployment into production, Developer Edition can easily be upgraded to SQL Server 2005 Enterprise Edition.

SQL Developer Edition is the binary equivalent to SQL Enterprise Edition. In order to properly answer your question about performance hit we'd need to know a lot more about your environment such as what your host server is, its resources, and the resources of your VM's.

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