I am setting up a VM of Win Vista to use for testing purposes. If I am running a firewall on the host computer, does the host firewall filter all traffic before it gets to the virtual NIC in the VM, thus protecting it ?
That depends. If you setup the Virtual Machine to use NAT, it does. If you set it to bridged networking, it does not (this is VMWare terminology, but others have the same thing).
You could have provided us with the name of the virtualization solution you use.